We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Colgate-Palmolive Company (NYSE:CL) and determine whether hedge funds skillfully traded this stock.
Is Colgate-Palmolive Company (NYSE:CL) going to take off soon? Investors who are in the know were selling. The number of long hedge fund bets fell by 3 recently. Colgate-Palmolive Company (NYSE:CL) was in 50 hedge funds' portfolios at the end of the second quarter of 2020. Our calculations also showed that CL 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). There were 53 hedge funds in our database with CL holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are assumed to be slow, outdated investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our experts choose to focus on the elite of this group, about 850 funds. These investment experts control the majority of the smart money's total asset base, and by shadowing their best equity investments, Insider Monkey has uncovered a few investment strategies that have historically beaten Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Louis Navellier of Navellier & Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we're going to take a gander at the key hedge fund action encompassing Colgate-Palmolive Company (NYSE:CL).
How are hedge funds trading Colgate-Palmolive Company (NYSE:CL)?
At the end of the second quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in CL a year ago. 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 Colgate-Palmolive Company (NYSE:CL) was held by Renaissance Technologies, which reported holding $409.7 million worth of stock at the end of September. It was followed by D E Shaw with a $220.3 million position. Other investors bullish on the company included AQR Capital Management, GuardCap Asset Management, and Yacktman Asset Management. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to Colgate-Palmolive Company (NYSE:CL), around 9.22% of its 13F portfolio. GuardCap Asset Management is also relatively very bullish on the stock, designating 7.93 percent of its 13F equity portfolio to CL.
Since Colgate-Palmolive Company (NYSE:CL) has faced a decline in interest from the smart money, logic holds that there were a few hedgies that elected to cut their full holdings in the second quarter. Interestingly, Benjamin Pass's TOMS Capital dropped the biggest position of all the hedgies followed by Insider Monkey, valued at an estimated $41.5 million in stock, and Steve Cohen's Point72 Asset Management was right behind this move, as the fund dumped about $28.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the second quarter.
Let's also examine hedge fund activity in other stocks similar to Colgate-Palmolive Company (NYSE:CL). These stocks are China Petroleum & Chemical Corp (NYSE:SNP), Equinix Inc (NASDAQ:EQIX), Advanced Micro Devices, Inc. (NASDAQ:AMD), Enbridge Inc (NYSE:ENB), The TJX Companies, Inc. (NYSE:TJX), Target Corporation (NYSE:TGT), and General Electric Company (NYSE:GE). All of these stocks' market caps resemble CL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNP,10,168521,1 EQIX,49,2314147,-6 AMD,51,2569197,-11 ENB,28,379932,3 TJX,72,2347508,3 TGT,54,3159010,0 GE,57,3186232,-1 Average,45.9,2017792,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.9 hedge funds with bullish positions and the average amount invested in these stocks was $2018 million. That figure was $1699 million in CL's case. The TJX Companies, Inc. (NYSE:TJX) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (NYSE:SNP) is the least popular one with only 10 bullish hedge fund positions. Colgate-Palmolive Company (NYSE:CL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CL is 51.7. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately CL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CL were disappointed as the stock returned 8.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.