At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Hewlett Packard Enterprise Company (NYSE:HPE) at the end of the first quarter and determine whether the smart money was really smart about this stock.
Hewlett Packard Enterprise Company (NYSE:HPE) shareholders have witnessed a decrease in hedge fund interest of late. Our calculations also showed that HPE 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.
If you'd ask most shareholders, hedge funds are perceived as slow, old investment tools of years past. While there are greater than 8000 funds in operation at the moment, We choose to focus on the elite of this club, about 850 funds. Most estimates calculate that this group of people orchestrate the lion's share of the hedge fund industry's total capital, and by observing their matchless investments, Insider Monkey has revealed numerous investment strategies that have historically exceeded the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's go over the latest hedge fund action surrounding Hewlett Packard Enterprise Company (NYSE:HPE).
How have hedgies been trading Hewlett Packard Enterprise Company (NYSE:HPE)?
Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HPE over the last 18 quarters. With hedge funds' sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Hewlett Packard Enterprise Company (NYSE:HPE) was held by Pzena Investment Management, which reported holding $363.6 million worth of stock at the end of September. It was followed by Oldfield Partners with a $70.4 million position. Other investors bullish on the company included Point72 Asset Management, Arrowstreet Capital, and AQR Capital Management. In terms of the portfolio weights assigned to each position Oldfield Partners allocated the biggest weight to Hewlett Packard Enterprise Company (NYSE:HPE), around 8.91% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 2.75 percent of its 13F equity portfolio to HPE.
Judging by the fact that Hewlett Packard Enterprise Company (NYSE:HPE) has experienced a decline in interest from the smart money, logic holds that there was a specific group of hedgies who were dropping their entire stakes heading into Q4. Interestingly, Renaissance Technologies dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, valued at about $26.1 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund sold off about $7.8 million worth. These moves are important to note, as aggregate hedge fund interest fell by 12 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Hewlett Packard Enterprise Company (NYSE:HPE). We will take a look at Twilio Inc. (NYSE:TWLO), TransUnion (NYSE:TRU), Evergy, Inc. (NYSE:EVRG), and D.R. Horton, Inc. (NYSE:DHI). This group of stocks' market valuations match HPE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TWLO,52,1549546,-8 TRU,44,895453,7 EVRG,30,757141,5 DHI,65,1265515,14 Average,47.75,1116914,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.75 hedge funds with bullish positions and the average amount invested in these stocks was $1117 million. That figure was $642 million in HPE's case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Evergy, Inc. (NYSE:EVRG) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Hewlett Packard Enterprise Company (NYSE:HPE) is even less popular than EVRG. Hedge funds dodged a bullet by taking a bearish stance towards HPE. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 15.5 percentage points. Unfortunately HPE wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HPE investors were disappointed as the stock returned 1.3% during the second quarter 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.