We can judge whether Arrow Electronics, Inc. (NYSE:ARW) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Arrow Electronics, Inc. (NYSE:ARW) worth your attention right now? The smart money is getting more bullish. The number of bullish hedge fund bets rose by 5 lately. Our calculations also showed that ARW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the key hedge fund action regarding Arrow Electronics, Inc. (NYSE:ARW).
What have hedge funds been doing with Arrow Electronics, Inc. (NYSE:ARW)?
Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in ARW over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Arrow Electronics, Inc. (NYSE:ARW) was held by AQR Capital Management, which reported holding $157.7 million worth of stock at the end of September. It was followed by Lyrical Asset Management with a $146.8 million position. Other investors bullish on the company included Citadel Investment Group, GMT Capital, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.21% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, designating 1.32 percent of its 13F equity portfolio to ARW.
Consequently, some big names were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Arrow Electronics, Inc. (NYSE:ARW). Arrowstreet Capital had $6 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also made a $2.1 million investment in the stock during the quarter. The other funds with brand new ARW positions are Benjamin A. Smith's Laurion Capital Management, Michael Kharitonov and Jon David McAuliffe's Voleon Capital, and Mike Vranos's Ellington.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Arrow Electronics, Inc. (NYSE:ARW) but similarly valued. These stocks are Unum Group (NYSE:UNM), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), Zillow Group Inc (NASDAQ:Z), and Flowserve Corporation (NYSE:FLS). This group of stocks' market valuations are closest to ARW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNM,23,474210,-2 KNX,22,303434,-1 Z,38,879845,-13 FLS,19,225613,-7 Average,25.5,470776,-5.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $471 million. That figure was $536 million in ARW's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Flowserve Corporation (NYSE:FLS) is the least popular one with only 19 bullish hedge fund positions. Arrow Electronics, Inc. (NYSE:ARW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on ARW, though not to the same extent, as the stock returned 6.8% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.