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Hedge Fund Favorites vs. Avnet, Inc. (AVT) In 2019

Nina Todic

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Avnet, Inc. (NASDAQ:AVT) and see how the stock performed in comparison to hedge funds' consensus picks.

Avnet, Inc. (NASDAQ:AVT) shareholders have witnessed an increase in hedge fund sentiment recently. AVT was in 28 hedge funds' portfolios at the end of September. There were 27 hedge funds in our database with AVT positions at the end of the previous quarter. Our calculations also showed that AVT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_338852" align="aligncenter" width="500"] Richard S. Pzena of Pzena Investment Management[/caption]

Richard Pzena - Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to review the latest hedge fund action surrounding Avnet, Inc. (NASDAQ:AVT).

How are hedge funds trading Avnet, Inc. (NASDAQ:AVT)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AVT over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Richard S. Pzena's Pzena Investment Management has the number one position in Avnet, Inc. (NASDAQ:AVT), worth close to $315.2 million, accounting for 1.7% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, managed by Cliff Asness, which holds a $118.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish contain Ric Dillon's Diamond Hill Capital, Bernard Horn's Polaris Capital Management and Renaissance Technologies. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to Avnet, Inc. (NASDAQ:AVT), around 2.09% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, setting aside 1.72 percent of its 13F equity portfolio to AVT.

Now, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the largest position in Avnet, Inc. (NASDAQ:AVT). Arrowstreet Capital had $19.9 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also made a $5.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Paul Marshall and Ian Wace's Marshall Wace, and Renee Yao's Neo Ivy Capital.

Let's go over hedge fund activity in other stocks similar to Avnet, Inc. (NASDAQ:AVT). These stocks are The Wendy's Company (NASDAQ:WEN), Bilibili Inc. (NASDAQ:BILI), Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR), and Ascendis Pharma A/S (NASDAQ:ASND). This group of stocks' market caps are similar to AVT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WEN,34,892985,10 BILI,18,383762,-5 ASR,4,38248,-3 ASND,33,2023367,0 Average,22.25,834591,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $835 million. That figure was $678 million in AVT's case. The Wendy's Company (NASDAQ:WEN) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) is the least popular one with only 4 bullish hedge fund positions. Avnet, Inc. (NASDAQ:AVT) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AVT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on AVT were disappointed as the stock returned 19.9% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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