Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Koninklijke Philips NV (NYSE:PHG).
Koninklijke Philips NV (NYSE:PHG) has seen an increase in activity from the world’s largest hedge funds of late. PHG was in 9 hedge funds’ portfolios at the end of December. There were 8 hedge funds in our database with PHG positions at the end of the previous quarter. Our calculations also showed that PHG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a peek at the fresh hedge fund action regarding Koninklijke Philips NV (NYSE:PHG).
How have hedgies been trading Koninklijke Philips NV (NYSE:PHG)?
Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PHG over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Koninklijke Philips NV (NYSE:PHG) was held by Arrowstreet Capital, which reported holding $135.2 million worth of stock at the end of September. It was followed by Millennium Management with a $13 million position. Other investors bullish on the company included Galibier Capital Management, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Beddow Capital Management allocated the biggest weight to Koninklijke Philips NV (NYSE:PHG), around 3.47% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, earmarking 3.09 percent of its 13F equity portfolio to PHG.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, established the largest position in Koninklijke Philips NV (NYSE:PHG). Citadel Investment Group had $7.3 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.4 million investment in the stock during the quarter. The only other fund with a brand new PHG position is Donald Sussman’s Paloma Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Koninklijke Philips NV (NYSE:PHG) but similarly valued. We will take a look at Baidu, Inc. (NASDAQ:BIDU), Analog Devices, Inc. (NASDAQ:ADI), Infosys Limited (NYSE:INFY), and L3Harris Technologies, Inc. (NASDAQ:LHX). This group of stocks’ market valuations match PHG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BIDU | 60 | 2832866 | 12 |
| ADI | 51 | 2513701 | 5 |
| INFY | 25 | 1464953 | -1 |
| LHX | 48 | 2542147 | -3 |
| Average | 46 | 2338417 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $2338 million. That figure was $180 million in PHG’s case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand Infosys Limited (NYSE:INFY) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Koninklijke Philips NV (NYSE:PHG) is even less popular than INFY. Hedge funds dodged a bullet by taking a bearish stance towards PHG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately PHG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PHG investors were disappointed as the stock returned -23% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
