CDW Corporation (CDW): Are Hedge Funds Right About This Stock?
We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like CDW Corporation (NASDAQ:CDW).
CDW Corporation (NASDAQ:CDW) shareholders have witnessed a decrease in enthusiasm from smart money recently. Our calculations also showed that CDW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 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 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.
[caption id="attachment_364869" align="aligncenter" width="561"]
Thomas Bancroft of Makaira Partners[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the latest hedge fund action surrounding CDW Corporation (NASDAQ:CDW).
How are hedge funds trading CDW Corporation (NASDAQ:CDW)?
At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CDW over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in CDW Corporation (NASDAQ:CDW) was held by Select Equity Group, which reported holding $480.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $289.7 million position. Other investors bullish on the company included Makaira Partners, GLG Partners, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Makaira Partners allocated the biggest weight to CDW Corporation (NASDAQ:CDW), around 17.98% of its portfolio. Select Equity Group is also relatively very bullish on the stock, designating 3.25 percent of its 13F equity portfolio to CDW.
Due to the fact that CDW Corporation (NASDAQ:CDW) has faced bearish sentiment from hedge fund managers, it's safe to say that there was a specific group of fund managers who sold off their entire stakes by the end of the third quarter. It's worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dropped the largest stake of all the hedgies watched by Insider Monkey, worth about $55.3 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $32.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). These stocks are CBRE Group, Inc. (NYSE:CBRE), Western Digital Corporation (NASDAQ:WDC), New Oriental Education & Technology Group Inc. (NYSE:EDU), and Healthpeak Properties, Inc. (NYSE:HCP). This group of stocks' market caps resemble CDW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBRE,27,1095686,2 WDC,35,905397,10 EDU,35,1511145,3 HCP,25,562264,-1 Average,30.5,1018623,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1019 million. That figure was $1168 million in CDW's case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Healthpeak Properties, Inc. (NYSE:HCP) is the least popular one with only 25 bullish hedge fund positions. CDW Corporation (NASDAQ:CDW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CDW, though not to the same extent, as the stock returned 9.9% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
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