At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Garmin Ltd. (NASDAQ:GRMN) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Garmin Ltd. (NASDAQ:GRMN) has experienced a decrease in support from the world's most elite money managers of late. Garmin Ltd. (NASDAQ:GRMN) was in 23 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. Our calculations also showed that GRMN 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.
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 56 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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a look at the recent hedge fund action surrounding Garmin Ltd. (NASDAQ:GRMN).
What does smart money think about Garmin Ltd. (NASDAQ:GRMN)?
At the end of June, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in GRMN a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Garmin Ltd. (NASDAQ:GRMN), with a stake worth $145.5 million reported as of the end of September. Trailing Select Equity Group was AQR Capital Management, which amassed a stake valued at $84.9 million. Adage Capital Management, D E Shaw, and Hosking Partners 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 G2 Investment Partners Management allocated the biggest weight to Garmin Ltd. (NASDAQ:GRMN), around 0.91% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, earmarking 0.84 percent of its 13F equity portfolio to GRMN.
Judging by the fact that Garmin Ltd. (NASDAQ:GRMN) has witnessed bearish sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of hedgies who were dropping their full holdings heading into Q3. Interestingly, Renaissance Technologies dropped the biggest stake of all the hedgies tracked by Insider Monkey, comprising close to $51.8 million in stock. Bruce Emery's fund, Greenvale Capital, also sold off its stock, about $15 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 4 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Garmin Ltd. (NASDAQ:GRMN) but similarly valued. These stocks are Coupa Software Incorporated (NASDAQ:COUP), The Royal Bank of Scotland Group plc (NYSE:RBS), Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), MPLX LP (NYSE:MPLX), Nutrien Ltd. (NYSE:NTR), and Citrix Systems, Inc. (NASDAQ:CTXS). This group of stocks' market caps are similar to GRMN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COUP,50,3002984,-16 RBS,5,5012,0 AJG,29,234663,1 AMP,28,707002,2 MPLX,13,179753,2 NTR,22,490722,0 CTXS,36,1146265,-2 Average,26.1,823772,-1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.1 hedge funds with bullish positions and the average amount invested in these stocks was $824 million. That figure was $398 million in GRMN's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand The Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. Garmin Ltd. (NASDAQ:GRMN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GRMN is 42.6. 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. This is a slightly negative signal and 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately GRMN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GRMN investors were disappointed as the stock returned -2.1% in the third quarter 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.