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. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Garmin Ltd. (NASDAQ:GRMN) based on that data.
Garmin Ltd. (NASDAQ:GRMN) investors should pay attention to a decrease in hedge fund sentiment of late. Our calculations also showed that GRMN 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 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 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 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.
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. 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. Keeping this in mind we’re going to check out the recent hedge fund action surrounding Garmin Ltd. (NASDAQ:GRMN).
What have hedge funds been doing with Garmin Ltd. (NASDAQ:GRMN)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GRMN over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Garmin Ltd. (NASDAQ:GRMN), with a stake worth $121 million reported as of the end of September. Trailing Select Equity Group was AQR Capital Management, which amassed a stake valued at $120.3 million. Marshall Wace LLP, D E Shaw, and Whale Rock Capital 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 Select Equity Group allocated the biggest weight to Garmin Ltd. (NASDAQ:GRMN), around 0.76% of its 13F portfolio. Whale Rock Capital Management is also relatively very bullish on the stock, setting aside 0.56 percent of its 13F equity portfolio to GRMN.
Due to the fact that Garmin Ltd. (NASDAQ:GRMN) has witnessed bearish sentiment from the smart money, it’s easy to see that there exists a select few hedgies who were dropping their full holdings in the third quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of all the hedgies monitored by Insider Monkey, worth close to $6.4 million in stock. Lee Ainslie’s fund, Maverick Capital, also dumped its stock, about $3.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds in the third quarter.
Let’s now review hedge fund activity in other stocks similar to Garmin Ltd. (NASDAQ:GRMN). These stocks are Fortinet Inc (NASDAQ:FTNT), ZTO Express (Cayman) Inc. (NYSE:ZTO), W.W. Grainger, Inc. (NYSE:GWW), and International Paper Company (NYSE:IP). This group of stocks’ market caps match GRMN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTNT | 42 | 1764894 | 1 |
| ZTO | 14 | 497928 | -6 |
| GWW | 29 | 700506 | 4 |
| IP | 25 | 272873 | -3 |
| Average | 27.5 | 809050 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $809 million. That figure was $510 million in GRMN’s case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 14 bullish hedge fund positions. Garmin Ltd. (NASDAQ:GRMN) 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 GRMN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GRMN investors were disappointed as the stock returned -17.5% 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.
