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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Colgate-Palmolive Company (NYSE:CL).
Is CL a good stock to buy now? Prominent investors were getting less optimistic. The number of bullish hedge fund bets were trimmed by 3 lately. Colgate-Palmolive Company (NYSE:CL) was in 47 hedge funds' portfolios at the end of September. The all time high for this statistic is 53. Our calculations also showed that CL 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are dozens of metrics shareholders employ to assess publicly traded companies. Some of the less utilized metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can beat the broader indices by a solid amount (see the details here).
Ray Dalio of Bridgewater Associates
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech 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 let's take a look at the new hedge fund action surrounding Colgate-Palmolive Company (NYSE:CL).
Do Hedge Funds Think CL Is A Good Stock To Buy Now?
At Q3's end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CL over the last 21 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the largest position in Colgate-Palmolive Company (NYSE:CL), worth close to $347.9 million, comprising 0.3% of its total 13F portfolio. The second most bullish fund manager is GuardCap Asset Management, led by Guardian Capital, holding a $240.4 million position; the fund has 7.8% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include Cliff Asness's AQR Capital Management, D. E. Shaw's D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position GuardCap Asset Management allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 7.8% of its 13F portfolio. Ayrshire Capital Management is also relatively very bullish on the stock, designating 2.03 percent of its 13F equity portfolio to CL.
Seeing as Colgate-Palmolive Company (NYSE:CL) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there is a sect of fund managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Robert M. P. Luciano's VGI Partners cut the biggest stake of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $78.5 million in stock, and Barry Dargan's Intermede Investment Partners was right behind this move, as the fund said goodbye to about $44.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the third quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Colgate-Palmolive Company (NYSE:CL) but similarly valued. We will take a look at FedEx Corporation (NYSE:FDX), Air Products & Chemicals, Inc. (NYSE:APD), Duke Energy Corporation (NYSE:DUK), Uber Technologies, Inc. (NYSE:UBER), The Sherwin-Williams Company (NYSE:SHW), Activision Blizzard, Inc. (NASDAQ:ATVI), and Cigna Corporation (NYSE:CI). This group of stocks' market values match CL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FDX,71,2579950,25 APD,49,745333,12 DUK,36,756631,3 UBER,100,5978770,6 SHW,55,1779583,2 ATVI,93,4222431,-4 CI,62,2751729,-10 Average,66.6,2687775,4.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 66.6 hedge funds with bullish positions and the average amount invested in these stocks was $2688 million. That figure was $1541 million in CL's case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 36 bullish hedge fund positions. Colgate-Palmolive Company (NYSE:CL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CL is 37.2. 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 32.9% in 2020 through December 8th and beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CL, though not to the same extent, as the stock returned 11% since the end of Q3 (through December 8th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.