Hedge funds are known to underperform the bull markets but that's not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds' consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds' purchases. We know better. That's why we scrutinize hedge fund sentiment before we invest in a stock like ASML Holding N.V. (NASDAQ:ASML).
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 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a gander at the fresh hedge fund action surrounding ASML Holding N.V. (NASDAQ:ASML).
How have hedgies been trading ASML Holding N.V. (NASDAQ:ASML)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in ASML 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.
The largest stake in ASML Holding N.V. (NASDAQ:ASML) was held by Fisher Asset Management, which reported holding $371.8 million worth of stock at the end of September. It was followed by D E Shaw with a $107.8 million position. Other investors bullish on the company included Renaissance Technologies, Segantii Capital, and Citadel Investment Group.
With a general bullishness amongst the heavyweights, key money managers have jumped into ASML Holding N.V. (NASDAQ:ASML) headfirst. Renaissance Technologies, managed by Jim Simons, established the most valuable position in ASML Holding N.V. (NASDAQ:ASML). Renaissance Technologies had $54.6 million invested in the company at the end of the quarter. Simon Sadler's Segantii Capital also initiated a $47.1 million position during the quarter. The other funds with brand new ASML positions are Sander Gerber's Hudson Bay Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Charles Clough's Clough Capital Partners.
Let's also examine hedge fund activity in other stocks similar to ASML Holding N.V. (NASDAQ:ASML). These stocks are Banco Bradesco SA (NYSE:BBD), General Electric Company (NYSE:GE), Charter Communications, Inc. (NASDAQ:CHTR), and Walgreens Boots Alliance Inc (NASDAQ:WBA). All of these stocks' market caps are closest to ASML's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BBD,16,627609,2 GE,59,2955156,13 CHTR,64,6572480,-3 WBA,39,1089022,5 Average,44.5,2811067,4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.5 hedge funds with bullish positions and the average amount invested in these stocks was $2811 million. That figure was $651 million in ASML's case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks ASML Holding N.V. (NASDAQ:ASML) is even less popular than BBD but the sentiment is improving. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on ASML as the stock returned 23.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.