A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let's study the hedge fund sentiment to see how those concerns affected their ownership of HD Supply Holdings Inc (NASDAQ:HDS) during the quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's review the key hedge fund action surrounding HD Supply Holdings Inc (NASDAQ:HDS).
Hedge fund activity in HD Supply Holdings Inc (NASDAQ:HDS)
Heading into the first quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HDS over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in HD Supply Holdings Inc (NASDAQ:HDS) was held by JANA Partners, which reported holding $202.6 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $154.6 million position. Other investors bullish on the company included OZ Management, GLG Partners, and D E Shaw.
Due to the fact that HD Supply Holdings Inc (NASDAQ:HDS) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few money managers who sold off their positions entirely by the end of the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the largest stake of the "upper crust" of funds tracked by Insider Monkey, valued at about $68.6 million in stock, and Robert Pohly's Samlyn Capital was right behind this move, as the fund dropped about $28.9 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as HD Supply Holdings Inc (NASDAQ:HDS) but similarly valued. These stocks are Cognex Corporation (NASDAQ:CGNX), Ares Capital Corporation (NASDAQ:ARCC), News Corp (NASDAQ:NWSA), and RingCentral Inc (NYSE:RNG). All of these stocks' market caps resemble HDS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CGNX,13,261357,0 ARCC,26,236492,1 NWSA,23,559183,-7 RNG,48,988782,6 Average,27.5,511454,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $511 million. That figure was $1053 million in HDS's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Cognex Corporation (NASDAQ:CGNX) is the least popular one with only 13 bullish hedge fund positions. HD Supply Holdings Inc (NASDAQ:HDS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that the top 15 most popular stocks among hedge funds returned 21.3% year-to-date through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on HDS, though not to the same extent, as the stock returned 18% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.