At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards T. Rowe Price Group, Inc. (NASDAQ:TROW) at the end of the second quarter and determine whether the smart money was really smart about this stock.
T. Rowe Price Group, Inc. (NASDAQ:TROW) investors should be aware of an increase in activity from the world's largest hedge funds of late. T. Rowe Price Group, Inc. (NASDAQ:TROW) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that TROW 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar 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. With all of this in mind we're going to check out the key hedge fund action surrounding T. Rowe Price Group, Inc. (NASDAQ:TROW).
How have hedgies been trading T. Rowe Price Group, Inc. (NASDAQ:TROW)?
Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in TROW over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the number one position in T. Rowe Price Group, Inc. (NASDAQ:TROW). AQR Capital Management has a $79.6 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Junto Capital Management, led by James Parsons, holding a $49 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish encompass Tom Gayner's Markel Gayner Asset Management, Phill Gross and Robert Atchinson's Adage Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Junto Capital Management allocated the biggest weight to T. Rowe Price Group, Inc. (NASDAQ:TROW), around 2.1% of its 13F portfolio. Shanda Asset Management is also relatively very bullish on the stock, designating 1.11 percent of its 13F equity portfolio to TROW.
With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Junto Capital Management, managed by James Parsons, created the most valuable position in T. Rowe Price Group, Inc. (NASDAQ:TROW). Junto Capital Management had $49 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $17.9 million position during the quarter. The following funds were also among the new TROW investors: Israel Englander's Millennium Management, Chen Tianqiao's Shanda Asset Management, and Peter Seuss's Prana Capital Management.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as T. Rowe Price Group, Inc. (NASDAQ:TROW) but similarly valued. These stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX), Alcon Inc. (NYSE:ALC), CoStar Group Inc (NASDAQ:CSGP), MSCI Inc (NYSE:MSCI), Marriott International Inc (NASDAQ:MAR), ResMed Inc. (NYSE:RMD), and SYSCO Corporation (NYSE:SYY). This group of stocks' market valuations are similar to TROW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IDXX,40,417149,9 ALC,21,584000,-4 CSGP,50,2267394,10 MSCI,44,729558,15 MAR,48,2159338,1 RMD,25,224162,-8 SYY,42,2177488,7 Average,38.6,1222727,4.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1223 million. That figure was $338 million in TROW's case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 21 bullish hedge fund positions. T. Rowe Price Group, Inc. (NASDAQ:TROW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TROW is 62.4. 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 TROW wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); TROW investors were disappointed as the stock returned 12.7% 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.