We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards International Business Machines Corp. (NYSE:IBM) and determine whether hedge funds skillfully traded this stock.
Is International Business Machines Corp. (NYSE:IBM) worth your attention right now? Prominent investors were buying. The number of long hedge fund bets increased by 5 in recent months. International Business Machines Corp. (NYSE:IBM) was in 46 hedge funds' portfolios at the end of June. The all time high for this statistics is 63. Our calculations also showed that IBM 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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 junior gold mining stock. 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. Keeping this in mind let's take a look at the new hedge fund action regarding International Business Machines Corp. (NYSE:IBM).
What does smart money think about International Business Machines Corp. (NYSE:IBM)?
At second quarter's end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards IBM over the last 20 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in International Business Machines Corp. (NYSE:IBM), which was worth $218.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $212.9 million worth of shares. Arrowstreet Capital, Kensico Capital, and Adage Capital Management 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 Beddow Capital Management allocated the biggest weight to International Business Machines Corp. (NYSE:IBM), around 5.02% of its 13F portfolio. Levin Capital Strategies is also relatively very bullish on the stock, earmarking 3.08 percent of its 13F equity portfolio to IBM.
As industrywide interest jumped, key money managers have been driving this bullishness. Renaissance Technologies, created the biggest position in International Business Machines Corp. (NYSE:IBM). Renaissance Technologies had $55 million invested in the company at the end of the quarter. Matthew Hulsizer's PEAK6 Capital Management also initiated a $21.6 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, David Harding's Winton Capital Management, and Qing Li's Sciencast Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as International Business Machines Corp. (NYSE:IBM) but similarly valued. We will take a look at Citigroup Inc. (NYSE:C), Charter Communications, Inc. (NASDAQ:CHTR), Wells Fargo & Company (NYSE:WFC), BHP Group (NYSE:BBL), The Boeing Company (NYSE:BA), PetroChina Company Limited (NYSE:PTR), and Pinduoduo Inc. (NASDAQ:PDD). All of these stocks' market caps match IBM's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position C,96,6229205,10 CHTR,96,11227561,-8 WFC,86,10344809,10 BBL,22,919411,1 BA,39,1280437,-15 PTR,6,63660,-1 PDD,30,4149572,2 Average,53.6,4887808,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 53.6 hedge funds with bullish positions and the average amount invested in these stocks was $4888 million. That figure was $918 million in IBM's case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand PetroChina Company Limited (NYSE:PTR) is the least popular one with only 6 bullish hedge fund positions. International Business Machines Corp. (NYSE:IBM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IBM is 54.1. 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. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately IBM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IBM investors were disappointed as the stock returned 3.4% since Q2 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.