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Did Hedge Funds Make The Right Call On Arrow Electronics, Inc. (ARW)?

Debasis Saha
·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Arrow Electronics, Inc. (NYSE:ARW) and determine whether the smart money was really smart about this stock.

Arrow Electronics, Inc. (NYSE:ARW) has experienced a decrease in enthusiasm from smart money of late. ARW was in 23 hedge funds' portfolios at the end of March. There were 34 hedge funds in our database with ARW positions at the end of the previous quarter. Our calculations also showed that ARW isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

At the moment there are several methods shareholders put to use to size up their holdings. Two of the most useful methods are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top money managers can outperform the market by a healthy margin (see the details here).

[caption id="attachment_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let's view the recent hedge fund action regarding Arrow Electronics, Inc. (NYSE:ARW).

Hedge fund activity in Arrow Electronics, Inc. (NYSE:ARW)

At Q1's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in ARW over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ARW A Good Stock To Buy?
Is ARW A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Arrow Electronics, Inc. (NYSE:ARW), which was worth $177 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $93 million worth of shares. Citadel Investment Group, Pzena Investment Management, and D E Shaw 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 Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.29% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, setting aside 0.63 percent of its 13F equity portfolio to ARW.

Seeing as Arrow Electronics, Inc. (NYSE:ARW) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedgies that decided to sell off their full holdings by the end of the first quarter. Intriguingly, Thomas E. Claugus's GMT Capital dropped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $17.9 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 11 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Arrow Electronics, Inc. (NYSE:ARW) but similarly valued. We will take a look at Invesco Ltd. (NYSE:IVZ), ICU Medical, Inc. (NASDAQ:ICUI), United Therapeutics Corporation (NASDAQ:UTHR), and Diamondback Energy Inc (NASDAQ:FANG). This group of stocks' market caps match ARW's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IVZ,26,114502,2 ICUI,25,376778,8 UTHR,31,1290986,-5 FANG,31,240887,-13 Average,28.25,505788,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $506 million. That figure was $359 million in ARW's case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand ICU Medical, Inc. (NASDAQ:ICUI) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Arrow Electronics, Inc. (NYSE:ARW) is even less popular than ICUI. Hedge funds clearly dropped the ball on ARW as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on ARW as the stock returned 32.4% in the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.

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