Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Philip Morris International Inc. (NYSE:PM).
Philip Morris International Inc. (NYSE:PM) investors should be aware of a decrease in enthusiasm from smart money in recent months. Our calculations also showed that PM 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 Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 take a look at the fresh hedge fund action surrounding Philip Morris International Inc. (NYSE:PM).
How are hedge funds trading Philip Morris International Inc. (NYSE:PM)?
At the end of the fourth quarter, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the third quarter of 2019. By comparison, 48 hedge funds held shares or bullish call options in PM a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Cedar Rock Capital, managed by Andy Brown, holds the biggest position in Philip Morris International Inc. (NYSE:PM). Cedar Rock Capital has a $781.8 million position in the stock, comprising 17.7% of its 13F portfolio. On Cedar Rock Capital’s heels is Gardner Russo & Gardner, managed by Tom Russo, which holds a $754.2 million position; the fund has 5.8% of its 13F portfolio invested in the stock. Other peers that are bullish comprise Ric Dillon’s Diamond Hill Capital, John W. Rogers’s Ariel Investments and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Cedar Rock Capital allocated the biggest weight to Philip Morris International Inc. (NYSE:PM), around 17.7% of its 13F portfolio. Chiron Investment Management is also relatively very bullish on the stock, setting aside 7.93 percent of its 13F equity portfolio to PM.
Because Philip Morris International Inc. (NYSE:PM) has faced declining sentiment from the aggregate hedge fund industry, we can see that there was a specific group of money managers that decided to sell off their full holdings by the end of the third quarter. Intriguingly, Rajiv Jain’s GQG Partners sold off the biggest position of the 750 funds monitored by Insider Monkey, totaling an estimated $439.9 million in stock. Ricky Sandler’s fund, Eminence Capital, also sold off its stock, about $53.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Philip Morris International Inc. (NYSE:PM) but similarly valued. We will take a look at AbbVie Inc (NYSE:ABBV), AstraZeneca plc (NYSE:AZN), Thermo Fisher Scientific Inc. (NYSE:TMO), and Costco Wholesale Corporation (NASDAQ:COST). This group of stocks’ market valuations are closest to PM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABBV | 71 | 5288422 | 3 |
| AZN | 32 | 1901127 | 4 |
| TMO | 73 | 3607687 | 3 |
| COST | 70 | 4401660 | 7 |
| Average | 61.5 | 3799724 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 61.5 hedge funds with bullish positions and the average amount invested in these stocks was $3800 million. That figure was $3241 million in PM’s case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand AstraZeneca plc (NYSE:AZN) is the least popular one with only 32 bullish hedge fund positions. Philip Morris International Inc. (NYSE:PM) is not the least popular stock in this group but hedge fund interest is still below average. 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. A small number of hedge funds were also right about betting on PM, though not to the same extent, as the stock returned -8.1% during the same time period and outperformed the market.
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.
