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 T. Rowe Price Group, Inc. (NASDAQ:TROW) and determine whether hedge funds skillfully traded this stock.
T. Rowe Price Group, Inc. (NASDAQ:TROW) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. TROW was in 24 hedge funds' portfolios at the end of March. There were 27 hedge funds in our database with TROW positions at the end of the previous quarter. Our calculations also showed that TROW 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like "the Starbucks of cannabis" to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. 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. With all of this in mind we're going to take a glance at the key hedge fund action encompassing T. Rowe Price Group, Inc. (NASDAQ:TROW).
What does smart money think about T. Rowe Price Group, Inc. (NASDAQ:TROW)?
Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in TROW a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in T. Rowe Price Group, Inc. (NASDAQ:TROW). AQR Capital Management has a $60.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Markel Gayner Asset Management, led by Tom Gayner, holding a $30.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism encompass Phill Gross and Robert Atchinson's Adage Capital Management, Renaissance Technologies and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Markel Gayner Asset Management allocated the biggest weight to T. Rowe Price Group, Inc. (NASDAQ:TROW), around 0.58% of its 13F portfolio. Qtron Investments is also relatively very bullish on the stock, dishing out 0.49 percent of its 13F equity portfolio to TROW.
Seeing as T. Rowe Price Group, Inc. (NASDAQ:TROW) has faced a decline in interest from the smart money, we can see that there is a sect of hedgies that decided to sell off their full holdings by the end of the first quarter. It's worth mentioning that Israel Englander's Millennium Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $12 million in stock. Ray Dalio's fund, Bridgewater Associates, also said goodbye to its stock, about $5.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 3 funds by the end of the first quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as T. Rowe Price Group, Inc. (NASDAQ:TROW) but similarly valued. We will take a look at Verisk Analytics, Inc. (NASDAQ:VRSK), Public Service Enterprise Group Incorporated (NYSE:PEG), Motorola Solutions Inc (NYSE:MSI), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks' market values match TROW's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRSK,31,924894,-2 PEG,34,901655,3 MSI,34,308519,-7 PAYX,41,643102,5 Average,35,694543,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $695 million. That figure was $191 million in TROW's case. Paychex, Inc. (NASDAQ:PAYX) is the most popular stock in this table. On the other hand Verisk Analytics, Inc. (NASDAQ:VRSK) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks T. Rowe Price Group, Inc. (NASDAQ:TROW) is even less popular than VRSK. Hedge funds clearly dropped the ball on TROW 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 TROW as the stock returned 27.4% 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.