Were Hedge Funds Right About Avoiding Accenture Plc (ACN)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Accenture Plc (NYSE:ACN).

Accenture Plc (NYSE:ACN) has seen a decrease in enthusiasm from smart money recently. Accenture Plc (NYSE:ACN) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistics is 49. Our calculations also showed that ACN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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 58 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.

Kevin Oram of Praesidium Investment Management Company

Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Accenture Plc (NYSE:ACN).

What have hedge funds been doing with Accenture Plc (NYSE:ACN)?

At Q2’s end, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ACN over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Accenture Plc (NYSE:ACN), which was worth $307.7 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $159 million worth of shares. Citadel Investment Group, Praesidium Investment Management Company, and GuardCap Asset Management 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 Praesidium Investment Management Company allocated the biggest weight to Accenture Plc (NYSE:ACN), around 7.62% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, setting aside 6.47 percent of its 13F equity portfolio to ACN.

Due to the fact that Accenture Plc (NYSE:ACN) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their positions entirely heading into Q3. It’s worth mentioning that Rajiv Jain’s GQG Partners sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling close to $177.6 million in stock, and Dipak Patel’s Alight Capital was right behind this move, as the fund said goodbye to about $4.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Accenture Plc (NYSE:ACN) but similarly valued. We will take a look at Costco Wholesale Corporation (NASDAQ:COST), Bristol Myers Squibb Company (NYSE:BMY), T-Mobile US, Inc. (NASDAQ:TMUS), Sanofi (NASDAQ:SNY), Broadcom Inc (NASDAQ:AVGO), BHP Group (NYSE:BHP), and Danaher Corporation (NYSE:DHR). This group of stocks’ market caps resemble ACN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 69.3 hedge funds with bullish positions and the average amount invested in these stocks was $3877 million. That figure was $1080 million in ACN’s case. Bristol Myers Squibb Company (NYSE:BMY) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 16 bullish hedge fund positions. Accenture Plc (NYSE:ACN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ACN is 38.6. 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. 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 30% in 2020 through October 23rd and surpassed the market by 21 percentage points. Unfortunately ACN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ACN investors were disappointed as the stock returned 7.8% since the end of June (through 10/23) 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.

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