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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Broadcom Inc (NASDAQ:AVGO).
Is AVGO a good stock to buy now? Hedge fund interest in Broadcom Inc (NASDAQ:AVGO) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that AVGO 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). 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 Exxon Mobil Corporation (NYSE:XOM), United Parcel Service, Inc. (NYSE:UPS), and T-Mobile US, Inc. (NASDAQ:TMUS) to gather more data points.
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.
William Von Mueffling of Cantillon Capital Management
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. With all of this in mind we're going to check out the new hedge fund action surrounding Broadcom Inc (NASDAQ:AVGO).
How have hedgies been trading Broadcom Inc (NASDAQ:AVGO)?
At third quarter's end, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVGO over the last 21 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Cantillon Capital Management was the largest shareholder of Broadcom Inc (NASDAQ:AVGO), with a stake worth $423.6 million reported as of the end of September. Trailing Cantillon Capital Management was First Pacific Advisors LLC, which amassed a stake valued at $380.5 million. Lyrical Asset Management, Citadel Investment Group, 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 40 North Management allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 5.64% of its 13F portfolio. First Pacific Advisors LLC is also relatively very bullish on the stock, designating 5.29 percent of its 13F equity portfolio to AVGO.
Seeing as Broadcom Inc (NASDAQ:AVGO) has faced falling interest from hedge fund managers, we can see that there was a specific group of hedgies who were dropping their positions entirely last quarter. Intriguingly, David Tepper's Appaloosa Management LP sold off the largest investment of all the hedgies tracked by Insider Monkey, worth about $63.1 million in stock, and John Hurley's Cavalry Asset Management was right behind this move, as the fund dumped about $25.1 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. We will take a look at Exxon Mobil Corporation (NYSE:XOM), United Parcel Service, Inc. (NYSE:UPS), T-Mobile US, Inc. (NASDAQ:TMUS), Accenture Plc (NYSE:ACN), AstraZeneca plc (NASDAQ:AZN), Eli Lilly and Company (NYSE:LLY), and Medtronic plc (NYSE:MDT). All of these stocks' market caps are similar to AVGO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XOM,52,1380236,-1 UPS,57,1731232,20 TMUS,94,7538763,-19 ACN,46,1148986,2 AZN,33,2259713,-5 LLY,60,2529803,9 MDT,62,2975696,4 Average,57.7,2794918,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.7 hedge funds with bullish positions and the average amount invested in these stocks was $2795 million. That figure was $2375 million in AVGO's case. T-Mobile US, Inc. (NASDAQ:TMUS) is the most popular stock in this table. On the other hand AstraZeneca plc (NASDAQ:AZN) is the least popular one with only 33 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AVGO is 47.6. 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 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 still beat the market by 16 percentage points. Hedge funds were also right about betting on AVGO as the stock returned 10.8% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.