Were Hedge Funds Right About Broadcom Inc (AVGO)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Broadcom Inc (NASDAQ:AVGO)? The smart money sentiment can provide an answer to this question.

Broadcom Inc (NASDAQ:AVGO) was in 47 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 83. AVGO investors should pay attention to a decrease in enthusiasm from smart money recently. There were 53 hedge funds in our database with AVGO positions at the end of the first quarter. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Gelband of ExodusPoint Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining 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 view the latest hedge fund action surrounding Broadcom Inc (NASDAQ:AVGO).

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

At the end of the second quarter, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 59 hedge funds with a bullish position in AVGO a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Cantillon Capital Management held the most valuable stake in Broadcom Inc (NASDAQ:AVGO), which was worth $524.1 million at the end of the second quarter. On the second spot was First Pacific Advisors LLC which amassed $427.6 million worth of shares. Farallon Capital, Lyrical Asset Management, and Citadel Investment Group 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 First Pacific Advisors LLC allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 5.36% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, designating 4.44 percent of its 13F equity portfolio to AVGO.

Seeing as Broadcom Inc (NASDAQ:AVGO) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of fund managers that decided to sell off their positions entirely by the end of the second quarter. Intriguingly, Glen Kacher’s Light Street Capital said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $62.1 million in stock, and Louis Bacon’s Moore Global Investments was right behind this move, as the fund dropped about $33.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 6 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. We will take a look at Novo Nordisk A/S (NYSE:NVO), Danaher Corporation (NYSE:DHR), Wells Fargo & Company (NYSE:WFC), Accenture Plc (NYSE:ACN), BHP Group (NYSE:BHP), Shopify Inc (NYSE:SHOP), and United Parcel Service, Inc. (NYSE:UPS). This group of stocks’ market valuations resemble AVGO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 57 hedge funds with bullish positions and the average amount invested in these stocks was $5305 million. That figure was $3031 million in AVGO’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 18 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVGO is 35.1. 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 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on AVGO as the stock returned 18.1% since the end of the second quarter (through 11/5) and outperformed the market by an even larger margin.

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