The Home Depot, Inc. (HD) Fell Out Of Favor With Hedge Funds

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Home Depot, Inc. (NYSE:HD).

The Home Depot, Inc. (NYSE:HD) shareholders have witnessed a decrease in hedge fund sentiment lately. The Home Depot, Inc. (NYSE:HD) was in 64 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 91. There were 68 hedge funds in our database with HD positions at the end of the first quarter. Our calculations also showed that HD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Phillip Gross of Adage Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the latest hedge fund action regarding The Home Depot, Inc. (NYSE:HD).

Do Hedge Funds Think HD Is A Good Stock To Buy Now?

At Q2’s end, a total of 64 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2020. By comparison, 85 hedge funds held shares or bullish call options in HD a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Fisher’s Fisher Asset Management has the number one position in The Home Depot, Inc. (NYSE:HD), worth close to $2.3259 billion, comprising 1.5% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $507.8 million call position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions consist of Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Tom Gayner’s Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Pittencrieff Partners – Gabalex Capital allocated the biggest weight to The Home Depot, Inc. (NYSE:HD), around 7.13% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, dishing out 5.79 percent of its 13F equity portfolio to HD.

Since The Home Depot, Inc. (NYSE:HD) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of money managers that slashed their positions entirely by the end of the second quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $64.2 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $38.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks similar to The Home Depot, Inc. (NYSE:HD). These stocks are The Procter & Gamble Company (NYSE:PG), The Walt Disney Company (NYSE:DIS), ASML Holding N.V. (NASDAQ:ASML), Adobe Inc. (NASDAQ:ADBE), Exxon Mobil Corporation (NYSE:XOM), Comcast Corporation (NASDAQ:CMCSA), and Toyota Motor Corporation (NYSE:TM). This group of stocks’ market values match HD’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 68.1 hedge funds with bullish positions and the average amount invested in these stocks was $7013 million. That figure was $4177 million in HD’s case. The Walt Disney Company (NYSE:DIS) is the most popular stock in this table. On the other hand Toyota Motor Corporation (NYSE:TM) is the least popular one with only 12 bullish hedge fund positions. The Home Depot, Inc. (NYSE:HD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HD is 48.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. A small number of hedge funds were also right about betting on HD as the stock returned 7.6% since the end of the second quarter (through 9/27) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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