At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Archer Daniels Midland Company (NYSE:ADM) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Archer Daniels Midland Company (NYSE:ADM) investors should be aware of a decrease in hedge fund interest lately. Archer Daniels Midland Company (NYSE:ADM) was in 28 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. There were 32 hedge funds in our database with ADM holdings at the end of March. Our calculations also showed that ADM isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.
Ian Wace of Marshall Wace
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's analyze the fresh hedge fund action regarding Archer Daniels Midland Company (NYSE:ADM).
How are hedge funds trading Archer Daniels Midland Company (NYSE:ADM)?
At second quarter's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2020. By comparison, 26 hedge funds held shares or bullish call options in ADM a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Diamond Hill Capital held the most valuable stake in Archer Daniels Midland Company (NYSE:ADM), which was worth $220.3 million at the end of the third quarter. On the second spot was Levin Easterly Partners which amassed $99.5 million worth of shares. GMT Capital, Markel Gayner Asset Management, and AQR Capital 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 Levin Easterly Partners allocated the biggest weight to Archer Daniels Midland Company (NYSE:ADM), around 4.52% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, earmarking 3.67 percent of its 13F equity portfolio to ADM.
Due to the fact that Archer Daniels Midland Company (NYSE:ADM) has faced bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that decided to sell off their full holdings in the second quarter. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management dropped the biggest investment of the 750 funds monitored by Insider Monkey, worth an estimated $27.5 million in stock, and Jonathan Barrett and Paul Segal's Luminus Management was right behind this move, as the fund cut about $9.6 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds in the second quarter.
Let's go over hedge fund activity in other stocks similar to Archer Daniels Midland Company (NYSE:ADM). We will take a look at Palo Alto Networks Inc (NYSE:PANW), Genmab A/S (NASDAQ:GMAB), Dollar Tree, Inc. (NASDAQ:DLTR), LyondellBasell Industries NV (NYSE:LYB), Equity Residential (NYSE:EQR), AvalonBay Communities Inc (NYSE:AVB), and Tyson Foods, Inc. (NYSE:TSN). This group of stocks' market valuations match ADM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PANW,51,3587653,4 GMAB,15,243405,1 DLTR,60,2268495,18 LYB,32,509614,-3 EQR,33,555124,9 AVB,34,1283293,4 TSN,37,649082,-4 Average,37.4,1299524,4.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.4 hedge funds with bullish positions and the average amount invested in these stocks was $1300 million. That figure was $607 million in ADM's case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand Genmab A/S (NASDAQ:GMAB) is the least popular one with only 15 bullish hedge fund positions. Archer Daniels Midland Company (NYSE:ADM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ADM is 40.9. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. A small number of hedge funds were also right about betting on ADM as the stock returned 16.4% since the end of June (through September 25th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.