Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 750 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' recent losses in Facebook. Let’s take a closer look at what the funds we track think about Sotheby's (NYSE:BID) in this article.
Is Sotheby's (NYSE:BID) the right pick for your portfolio? The smart money is taking a pessimistic view. The number of long hedge fund bets retreated by 9 recently. Our calculations also showed that bid isn't among the 30 most popular stocks among hedge funds. BID was in 16 hedge funds' portfolios at the end of December. There were 25 hedge funds in our database with BID positions at the end of the previous quarter.
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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to take a peek at the recent hedge fund action regarding Sotheby's (NYSE:BID).
How are hedge funds trading Sotheby's (NYSE:BID)?
At Q4's end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -36% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in BID a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Dan Loeb's Third Point has the largest position in Sotheby's (NYSE:BID), worth close to $264.7 million, comprising 4.1% of its total 13F portfolio. Sitting at the No. 2 spot is D. E. Shaw of D E Shaw, with a $18.1 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions contain Chuck Royce's Royce & Associates, Jim Simons's Renaissance Technologies and Paul Marshall and Ian Wace's Marshall Wace LLP.
Seeing as Sotheby's (NYSE:BID) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds who sold off their entire stakes last quarter. Interestingly, Andrew Sandler's Sandler Capital Management dumped the largest position of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $4.7 million in stock. Sander Gerber's fund, Hudson Bay Capital Management, also cut its stock, about $2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Sotheby's (NYSE:BID). We will take a look at Jagged Peak Energy Inc. (NYSE:JAG), Lexington Realty Trust (NYSE:LXP), Altair Engineering Inc. (NASDAQ:ALTR), and SeaWorld Entertainment Inc (NYSE:SEAS). All of these stocks' market caps are closest to BID's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JAG,10,84418,-5 LXP,16,41352,3 ALTR,14,62260,1 SEAS,29,650882,7 Average,17.25,209728,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $359 million in BID's case. SeaWorld Entertainment Inc (NYSE:SEAS) is the most popular stock in this table. On the other hand Jagged Peak Energy Inc. (NYSE:JAG) is the least popular one with only 10 bullish hedge fund positions. Sotheby's (NYSE:BID) is not the least popular stock in this group but hedge fund interest is still below average. 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately BID wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); BID investors were disappointed as the stock returned 9.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.