Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.
ABB Ltd (NYSE:ABB) was in 13 hedge funds' portfolios at the end of June. ABB investors should pay attention to a decrease in activity from the world's largest hedge funds of late. There were 15 hedge funds in our database with ABB holdings at the end of the previous quarter. Our calculations also showed that ABB isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to go over the key hedge fund action regarding ABB Ltd (NYSE:ABB).
What does smart money think about ABB Ltd (NYSE:ABB)?
At Q2's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ABB over the last 16 quarters. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Ken Fisher's Fisher Asset Management has the largest position in ABB Ltd (NYSE:ABB), worth close to $243.5 million, corresponding to 0.3% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, led by Jim Simons, holding a $50.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Kenneth Squire's 13D Management, Israel Englander's Millennium Management and Ed Beddow and William Tichy's Beddow Capital Management.
Because ABB Ltd (NYSE:ABB) has faced falling interest from the smart money, logic holds that there were a few money managers who sold off their entire stakes by the end of the second quarter. Intriguingly, Ken Griffin's Citadel Investment Group dumped the biggest position of the "upper crust" of funds watched by Insider Monkey, valued at about $12.6 million in stock. D. E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $2.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as ABB Ltd (NYSE:ABB) but similarly valued. These stocks are Capital One Financial Corp. (NYSE:COF), The Sherwin-Williams Company (NYSE:SHW), The Bank of New York Mellon Corporation (NYSE:BK), and Public Storage (NYSE:PSA). This group of stocks' market caps resemble ABB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COF,42,2009156,-2 SHW,40,1429509,-2 BK,33,4940344,-3 PSA,20,824189,-5 Average,33.75,2300800,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.75 hedge funds with bullish positions and the average amount invested in these stocks was $2301 million. That figure was $325 million in ABB's case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Public Storage (NYSE:PSA) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks ABB Ltd (NYSE:ABB) is even less popular than PSA. Hedge funds dodged a bullet by taking a bearish stance towards ABB. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ABB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ABB investors were disappointed as the stock returned -1.8% during 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.