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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is 3M Company (NYSE:MMM), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is 3M (MMM) a good stock to buy now? Hedge funds were becoming hopeful. The number of long hedge fund bets improved by 14 recently. 3M Company (NYSE:MMM) was in 56 hedge funds' portfolios at the end of September. The all time high for this statistics is 52. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MMM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 42 hedge funds in our database with MMM positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Ian Wace of Marshall Wace
At Insider Monkey 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. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Keeping this in mind let's check out the new hedge fund action encompassing 3M Company (NYSE:MMM).
What does smart money think about 3M Company (NYSE:MMM)?
Heading into the fourth quarter of 2020, a total of 56 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MMM over the last 21 quarters. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
The largest stake in 3M Company (NYSE:MMM) was held by Fisher Asset Management, which reported holding $751 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $190.3 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to 3M Company (NYSE:MMM), around 3.2% of its 13F portfolio. Iszo Capital is also relatively very bullish on the stock, setting aside 2.89 percent of its 13F equity portfolio to MMM.
Consequently, specific money managers were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most outsized position in 3M Company (NYSE:MMM). Marshall Wace LLP had $33.2 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also initiated a $18.3 million position during the quarter. The other funds with brand new MMM positions are Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, John Brennan's Sirios Capital Management, and Brian Sheehy's Iszo Capital.
Let's also examine hedge fund activity in other stocks similar to 3M Company (NYSE:MMM). These stocks are HDFC Bank Limited (NYSE:HDB), Fidelity National Information Services Inc. (NYSE:FIS), TOTAL SE (NYSE:TOT), Citigroup Inc. (NYSE:C), Pinduoduo Inc. (NASDAQ:PDD), Raytheon Technologies Corp (NYSE:RTX), and S&P Global Inc. (NYSE:SPGI). This group of stocks' market valuations are closest to MMM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HDB,34,1121313,-8 FIS,88,7940617,-23 TOT,18,639601,-1 C,91,5545152,-5 PDD,34,4331330,4 RTX,55,2988856,-4 SPGI,71,3030583,0 Average,55.9,3656779,-5.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 55.9 hedge funds with bullish positions and the average amount invested in these stocks was $3657 million. That figure was $1348 million in MMM's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand TOTAL SE (NYSE:TOT) is the least popular one with only 18 bullish hedge fund positions. 3M Company (NYSE:MMM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MMM is 66. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately MMM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MMM were disappointed as the stock returned 8.2% since the end of September (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.