Were Hedge Funds Right About Quitting Altria Group Inc (MO)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Altria Group Inc (NYSE:MO) and determine whether hedge funds skillfully traded this stock.

Altria Group Inc (NYSE:MO) was in 46 hedge funds’ portfolios at the end of March. MO has seen a decrease in hedge fund interest lately. There were 54 hedge funds in our database with MO positions at the end of the previous quarter. Our calculations also showed that MO isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Einhorn of Greenlight Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s go over the fresh hedge fund action regarding Altria Group Inc (NYSE:MO).

What does smart money think about Altria Group Inc (NYSE:MO)?

At the end of the first quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MO over the last 18 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

More specifically, Citadel Investment Group was the largest shareholder of Altria Group Inc (NYSE:MO), with a stake worth $315.5 million reported as of the end of September. Trailing Citadel Investment Group was Two Sigma Advisors, which amassed a stake valued at $125.8 million. Renaissance Technologies, OZ Management, and Orbis Investment 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 Callodine Capital Management allocated the biggest weight to Altria Group Inc (NYSE:MO), around 10.08% of its 13F portfolio. Clearline Capital is also relatively very bullish on the stock, designating 4.44 percent of its 13F equity portfolio to MO.

Seeing as Altria Group Inc (NYSE:MO) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of hedge funds who sold off their entire stakes in the first quarter. It’s worth mentioning that Lone Pine Capital cut the biggest position of the 750 funds tracked by Insider Monkey, comprising about $176.5 million in stock. Aaron Cowen’s fund, Suvretta Capital Management, also said goodbye to its stock, about $142.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 8 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Altria Group Inc (NYSE:MO) but similarly valued. These stocks are Mondelez International Inc (NASDAQ:MDLZ), HDFC Bank Limited (NYSE:HDB), General Electric Company (NYSE:GE), and American Express Company (NYSE:AXP). All of these stocks’ market caps resemble MO’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.75 hedge funds with bullish positions and the average amount invested in these stocks was $5754 million. That figure was $1440 million in MO’s case. General Electric Company (NYSE:GE) is the most popular stock in this table. On the other hand HDFC Bank Limited (NYSE:HDB) is the least popular one with only 38 bullish hedge fund positions. Altria Group Inc (NYSE:MO) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately MO wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MO investors were disappointed as the stock returned 3.7% during the second quarter 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.