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In this article we will check out the progression of hedge fund sentiment towards Avnet, Inc. (NASDAQ:AVT) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Avnet, Inc. (NASDAQ:AVT) has experienced a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that AVT 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
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Richard S. Pzena of Pzena Investment Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a glance at the new hedge fund action encompassing Avnet, Inc. (NASDAQ:AVT).
What have hedge funds been doing with Avnet, Inc. (NASDAQ:AVT)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the fourth quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in AVT a year ago. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Avnet, Inc. (NASDAQ:AVT) was held by Pzena Investment Management, which reported holding $226.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $104.7 million position. Other investors bullish on the company included D E Shaw, Diamond Hill Capital, and Polaris Capital Management. In terms of the portfolio weights assigned to each position Boardman Bay Capital Management allocated the biggest weight to Avnet, Inc. (NASDAQ:AVT), around 1.9% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, earmarking 1.72 percent of its 13F equity portfolio to AVT.
Because Avnet, Inc. (NASDAQ:AVT) has experienced falling interest from the smart money, logic holds that there were a few hedge funds that decided to sell off their positions entirely last quarter. Interestingly, Noam Gottesman's GLG Partners dumped the largest investment of the 750 funds tracked by Insider Monkey, valued at an estimated $11.5 million in stock, and Lee Ainslie's Maverick Capital was right behind this move, as the fund sold off about $2.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Avnet, Inc. (NASDAQ:AVT) but similarly valued. These stocks are Werner Enterprises, Inc. (NASDAQ:WERN), Cenovus Energy Inc (NYSE:CVE), Companhia Energetica de Minas Gerais (NYSE:CIG), and Corporate Office Properties Trust (NYSE:OFC). This group of stocks' market values resemble AVT's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WERN,17,161749,-4 CVE,24,102988,-7 CIG,10,20207,1 OFC,17,158054,-4 Average,17,110750,-3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $111 million. That figure was $453 million in AVT's case. Cenovus Energy Inc (NYSE:CVE) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 10 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 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 13.9% in 2020 through June 10th but beat the market by 14.2 percentage points. Unfortunately AVT wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AVT were disappointed as the stock returned 14.9% during the same time period 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.