Were Hedge Funds Right About Crowding Into The Hershey Company (HSY)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of The Hershey Company (NYSE:HSY).

The Hershey Company (NYSE:HSY) has seen an increase in activity from the world’s largest hedge funds lately. The Hershey Company (NYSE:HSY) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 33 hedge funds in our database with HSY holdings at the end of March. Our calculations also showed that HSY 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.

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 56 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.

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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now let’s take a glance at the new hedge fund action regarding The Hershey Company (NYSE:HSY).

How are hedge funds trading The Hershey Company (NYSE:HSY)?

At second quarter’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in HSY over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in The Hershey Company (NYSE:HSY) was held by Renaissance Technologies, which reported holding $651.4 million worth of stock at the end of June. It was followed by AQR Capital Management with a $113.3 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Adage Capital Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to The Hershey Company (NYSE:HSY), around 0.56% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.48 percent of its 13F equity portfolio to HSY.

As aggregate interest increased, key money managers have jumped into The Hershey Company (NYSE:HSY) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in The Hershey Company (NYSE:HSY). Balyasny Asset Management had $19.8 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $7 million investment in the stock during the quarter. The other funds with brand new HSY positions are Steve Cohen’s Point72 Asset Management, Parvinder Thiara’s Athanor Capital, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks similar to The Hershey Company (NYSE:HSY). We will take a look at CRH PLC (NYSE:CRH), ING Groep N.V. (NYSE:ING), TE Connectivity Ltd. (NYSE:TEL), American International Group Inc (NYSE:AIG), Cadence Design Systems Inc (NASDAQ:CDNS), The Kroger Co. (NYSE:KR), and Microchip Technology Incorporated (NASDAQ:MCHP). This group of stocks’ market values are similar to HSY’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.3 hedge funds with bullish positions and the average amount invested in these stocks was $1262 million. That figure was $1028 million in HSY’s case. The Kroger Co. (NYSE:KR) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 7 bullish hedge fund positions. The Hershey Company (NYSE:HSY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HSY is 87.1. 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 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on HSY, though not to the same extent, as the stock returned 6.6% since Q2 (through October 30th) and outperformed the market as well.

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