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2019 Review: Most Favored Hedge Fund Stocks vs. The Hershey Company (HSY)

Debasis Saha

Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.1% in 2019 (through December 23) and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards The Hershey Company (NYSE:HSY) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

The Hershey Company (NYSE:HSY) has experienced an increase in activity from the world's largest hedge funds of late. HSY was in 33 hedge funds' portfolios at the end of the third quarter of 2019. There were 27 hedge funds in our database with HSY positions at the end of the previous quarter. Our calculations also showed that HSY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's view the fresh hedge fund action regarding The Hershey Company (NYSE:HSY).

How are hedge funds trading The Hershey Company (NYSE:HSY)?

Heading into the fourth quarter of 2019, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HSY over the last 17 quarters. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is HSY A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the most valuable position in The Hershey Company (NYSE:HSY), worth close to $748.4 million, accounting for 0.6% of its total 13F portfolio. On Renaissance Technologies's heels is Citadel Investment Group, managed by Ken Griffin, which holds a $80.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Cliff Asness's AQR Capital Management, Noam Gottesman's GLG Partners and Joel Greenblatt's Gotham Asset Management. In terms of the portfolio weights assigned to each position Cognios Capital allocated the biggest weight to The Hershey Company (NYSE:HSY), around 0.97% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to HSY.

As one would reasonably expect, key hedge funds were breaking ground themselves. ExodusPoint Capital, managed by Michael Gelband, assembled the most outsized position in The Hershey Company (NYSE:HSY). ExodusPoint Capital had $7.4 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also made a $6.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, Paul Marshall and Ian Wace's Marshall Wace, and Philippe Laffont's Coatue Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Hershey Company (NYSE:HSY) but similarly valued. We will take a look at Autodesk, Inc. (NASDAQ:ADSK), China Unicom (Hong Kong) Limited (NYSE:CHU), Shopify Inc (NYSE:SHOP), and Equity Residential (NYSE:EQR). All of these stocks' market caps are closest to HSY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADSK,45,2728142,-11 CHU,8,65922,2 SHOP,34,2509650,8 EQR,23,196497,0 Average,27.5,1375053,-0.25 [/table]

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 $1375 million. That figure was $1104 million in HSY's case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 bullish hedge fund positions. The Hershey Company (NYSE:HSY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on HSY, though not to the same extent, as the stock returned 39.6% during 2019 (as of 12/23) and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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