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 Deere & Company (NYSE:DE).
Is Deere & Company (NYSE:DE) undervalued? Money managers were becoming less confident. The number of long hedge fund positions shrunk by 3 lately. Deere & Company (NYSE:DE) was in 51 hedge funds’ portfolios at the end of March. The all time high for this statistic is 54. Our calculations also showed that DE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 54 hedge funds in our database with DE positions at the end of the fourth quarter.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation, which is why we are checking out this inflation play. We go through lists like 10 best gold stocks to buy to identify promising stocks. 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 homepage. With all of this in mind let’s analyze the key hedge fund action regarding Deere & Company (NYSE:DE).
Do Hedge Funds Think DE Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 51 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in DE over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Markel Gayner Asset Management held the most valuable stake in Deere & Company (NYSE:DE), which was worth $282.8 million at the end of the fourth quarter. On the second spot was Viking Global which amassed $260.6 million worth of shares. Greenhaven Associates, Citadel Investment Group, and Impax Asset 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 Engine No. 1 LLC allocated the biggest weight to Deere & Company (NYSE:DE), around 10.49% of its 13F portfolio. Horseman Capital Management is also relatively very bullish on the stock, setting aside 8.14 percent of its 13F equity portfolio to DE.
Because Deere & Company (NYSE:DE) has experienced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedge funds that elected to cut their entire stakes in the first quarter. At the top of the heap, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $45.7 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dropped about $39.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds in the first quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Deere & Company (NYSE:DE) but similarly valued. These stocks are Raytheon Technologies Corp (NYSE:RTX), Sea Limited (NYSE:SE), General Electric Company (NYSE:GE), BlackRock, Inc. (NYSE:BLK), American Express Company (NYSE:AXP), PetroChina Company Limited (NYSE:PTR), and Airbnb, Inc. (NASDAQ:ABNB). All of these stocks’ market caps are closest to DE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTX | 58 | 2497449 | -1 |
| SE | 98 | 10433038 | -17 |
| GE | 68 | 6166147 | -1 |
| BLK | 42 | 1524856 | -11 |
| AXP | 53 | 24475341 | -7 |
| PTR | 8 | 73088 | 3 |
| ABNB | 52 | 2417824 | -16 |
| Average | 54.1 | 6798249 | -7.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.1 hedge funds with bullish positions and the average amount invested in these stocks was $6798 million. That figure was $2047 million in DE’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 8 bullish hedge fund positions. Deere & Company (NYSE:DE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DE is 54.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.4% in 2021 through June 18th and surpassed the market again by 6.1 percentage points. Unfortunately DE wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DE investors were disappointed as the stock returned -12.1% since the end of March (through 6/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Deere & Co (NYSE:DE)
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Disclosure: None. This article was originally published at Insider Monkey.
