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. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Walgreens Boots Alliance Inc (NASDAQ:WBA).
Hedge fund interest in Walgreens Boots Alliance Inc (NASDAQ:WBA) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Air Products & Chemicals, Inc. (NYSE:APD), Vodafone Group Plc (NASDAQ:VOD), and Intercontinental Exchange Inc (NYSE:ICE) to gather more data points. Our calculations also showed that WBA 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).
In the eyes of most investors, hedge funds are seen as worthless, old investment vehicles of yesteryear. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the bigwigs of this group, approximately 850 funds. Most estimates calculate that this group of people administer the lion’s share of the smart money’s total capital, and by following their inimitable investments, Insider Monkey has identified a number of investment strategies that have historically surpassed the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Paul Marshall of Marshall Wace
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 take a peek at the recent hedge fund action encompassing Walgreens Boots Alliance Inc (NASDAQ:WBA).
Hedge fund activity in Walgreens Boots Alliance Inc (NASDAQ:WBA)
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the third quarter of 2019. On the other hand, there were a total of 39 hedge funds with a bullish position in WBA a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in Walgreens Boots Alliance Inc (NASDAQ:WBA) was held by Two Sigma Advisors, which reported holding $212.6 million worth of stock at the end of September. It was followed by Markel Gayner Asset Management with a $121.3 million position. Other investors bullish on the company included Adage Capital Management, D E Shaw, and AQR Capital Management. In terms of the portfolio weights assigned to each position JNE Partners allocated the biggest weight to Walgreens Boots Alliance Inc (NASDAQ:WBA), around 19.28% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, earmarking 6.36 percent of its 13F equity portfolio to WBA.
Judging by the fact that Walgreens Boots Alliance Inc (NASDAQ:WBA) has faced bearish sentiment from the smart money, it’s easy to see that there exists a select few money managers that slashed their entire stakes in the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $97.6 million in stock, and Ray Dalio’s Bridgewater Associates was right behind this move, as the fund dropped about $46.7 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Walgreens Boots Alliance Inc (NASDAQ:WBA). These stocks are Air Products & Chemicals, Inc. (NYSE:APD), Vodafone Group Plc (NASDAQ:VOD), Intercontinental Exchange Inc (NYSE:ICE), and JD.Com Inc (NASDAQ:JD). This group of stocks’ market caps resemble WBA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| APD | 54 | 736586 | 13 |
| VOD | 16 | 758597 | -4 |
| ICE | 52 | 2712531 | 3 |
| JD | 63 | 6041314 | 3 |
| Average | 46.25 | 2562257 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $2562 million. That figure was $694 million in WBA’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 16 bullish hedge fund positions. Walgreens Boots Alliance Inc (NASDAQ:WBA) 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 WBA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WBA investors were disappointed as the stock returned -28.7% 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.
