We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about 3M Company (NYSE:MMM) in this article.
3M Company (NYSE:MMM) investors should pay attention to a decrease in hedge fund interest of late. Our calculations also showed that MMM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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. 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the latest hedge fund action regarding 3M Company (NYSE:MMM).
What have hedge funds been doing with 3M Company (NYSE:MMM)?
At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MMM over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Two Sigma Advisors held the most valuable stake in 3M Company (NYSE:MMM), which was worth $329 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $123.5 million worth of shares. Adage Capital Management, AQR Capital Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Southport Management allocated the biggest weight to 3M Company (NYSE:MMM), around 4.3% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, dishing out 1.93 percent of its 13F equity portfolio to MMM.
Judging by the fact that 3M Company (NYSE:MMM) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few funds that slashed their entire stakes in the third quarter. Interestingly, Renaissance Technologies cut the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $17.6 million in stock. Matthew Tewksbury’s fund, Stevens Capital Management, also dumped its stock, about $10 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 6 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to 3M Company (NYSE:MMM). We will take a look at QUALCOMM, Incorporated (NASDAQ:QCOM), United Parcel Service, Inc. (NYSE:UPS), Rio Tinto Group (NYSE:RIO), and General Electric Company (NYSE:GE). This group of stocks’ market caps match MMM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QCOM | 67 | 3090818 | 7 |
| UPS | 42 | 975024 | -3 |
| RIO | 21 | 1680869 | -1 |
| GE | 60 | 6210817 | 2 |
| Average | 47.5 | 2989382 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.5 hedge funds with bullish positions and the average amount invested in these stocks was $2989 million. That figure was $856 million in MMM’s case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 21 bullish hedge fund positions. 3M Company (NYSE:MMM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately MMM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MMM investors were disappointed as the stock returned -15% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
