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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Deere & Company (NYSE:DE) and determine whether the smart money was really smart about this stock.
Deere & Company (NYSE:DE) investors should pay attention to a decrease in hedge fund sentiment of late. Deere & Company (NYSE:DE) was in 32 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 51. There were 44 hedge funds in our database with DE holdings at the end of March. Our calculations also showed that DE isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now let's check out the key hedge fund action surrounding Deere & Company (NYSE:DE).
Hedge fund activity in Deere & Company (NYSE:DE)
At Q2's end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -27% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in DE a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Greenhaven Associates was the largest shareholder of Deere & Company (NYSE:DE), with a stake worth $328 million reported as of the end of September. Trailing Greenhaven Associates was Markel Gayner Asset Management, which amassed a stake valued at $118.8 million. Impax Asset Management, Citadel Investment Group, and GAMCO Investors 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 Greenhaven Associates allocated the biggest weight to Deere & Company (NYSE:DE), around 7.26% of its 13F portfolio. Firefly Value Partners is also relatively very bullish on the stock, dishing out 3.54 percent of its 13F equity portfolio to DE.
Because Deere & Company (NYSE:DE) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of money managers that slashed their entire stakes in the second quarter. At the top of the heap, Aaron Cowen's Suvretta Capital Management cut the largest stake of the 750 funds monitored by Insider Monkey, valued at close to $66.4 million in stock. Steve Cohen's fund, Point72 Asset Management, also dropped its stock, about $39.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 12 funds in the second quarter.
Let's check out hedge fund activity in other stocks similar to Deere & Company (NYSE:DE). These stocks are Mercadolibre Inc (NASDAQ:MELI), Kimberly Clark Corporation (NYSE:KMB), ABB Ltd (NYSE:ABB), Spotify Technology S.A. (NYSE:SPOT), Dollar General Corp. (NYSE:DG), Barrick Gold Corporation (NYSE:GOLD), and Equinor ASA (NYSE:EQNR). All of these stocks' market caps are similar to DE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MELI,60,4427510,0 KMB,37,1173794,-9 ABB,10,346451,0 SPOT,36,1882209,-4 DG,67,2296237,7 GOLD,52,3360658,-2 EQNR,10,237155,-1 Average,38.9,1960573,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.9 hedge funds with bullish positions and the average amount invested in these stocks was $1961 million. That figure was $840 million in DE's case. Dollar General Corp. (NYSE:DG) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 bullish hedge fund positions. Deere & Company (NYSE:DE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DE is 31.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on DE as the stock returned 38.9% since the end of June (through September 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.