Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 20 stock picks easily bested the broader market, at 34.7% compared to 26.2%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Costco Wholesale Corporation (NASDAQ:COST) has seen an increase in hedge fund sentiment of late. Our calculations also showed that COST isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most stock holders, hedge funds are viewed as unimportant, old financial tools of years past. While there are over 8000 funds in operation today, We look at the upper echelon of this club, around 750 funds. These money managers oversee most of the hedge fund industry's total asset base, and by following their finest equity investments, Insider Monkey has figured out several investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We're going to analyze the recent hedge fund action regarding Costco Wholesale Corporation (NASDAQ:COST).
How are hedge funds trading Costco Wholesale Corporation (NASDAQ:COST)?
At the end of the third quarter, a total of 51 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in COST over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, Warren Buffett's Berkshire Hathaway has the largest position in Costco Wholesale Corporation (NASDAQ:COST), worth close to $1.2485 billion, amounting to 0.6% of its total 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $874.5 million position; 1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions encompass John Overdeck and David Siegel's Two Sigma Advisors, David E. Shaw's D E Shaw and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to Costco Wholesale Corporation (NASDAQ:COST), around 3.98% of its portfolio. Unio Capital is also relatively very bullish on the stock, earmarking 3.3 percent of its 13F equity portfolio to COST.
Consequently, some big names were leading the bulls' herd. Renaissance Technologies, assembled the largest position in Costco Wholesale Corporation (NASDAQ:COST). Renaissance Technologies had $133.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $17.4 million investment in the stock during the quarter. The following funds were also among the new COST investors: Parvinder Thiara's Athanor Capital, Michael Kharitonov and Jon David McAuliffe's Voleon Capital, and Matthew Tewksbury's Stevens Capital Management.
Let's also examine hedge fund activity in other stocks similar to Costco Wholesale Corporation (NASDAQ:COST). These stocks are BHP Group (NYSE:BHP), Accenture Plc (NYSE:ACN), Novo Nordisk A/S (NYSE:NVO), and Paypal Holdings Inc (NASDAQ:PYPL). This group of stocks' market caps are closest to COST's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BHP,21,800372,2 ACN,42,1120846,4 NVO,21,3007327,4 PYPL,95,4135931,0 Average,44.75,2266119,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $2266 million. That figure was $3862 million in COST's case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand BHP Group (NYSE:BHP) is the least popular one with only 21 bullish hedge fund positions. Costco Wholesale Corporation (NASDAQ:COST) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately COST wasn't nearly as popular as these 20 stocks and hedge funds that were betting on COST were disappointed as the stock returned 4.1% during the fourth quarter (through 11/22) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.