In this article we will take a look at whether hedge funds think W.W. Grainger, Inc. (NYSE:GWW) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
W.W. Grainger, Inc. (NYSE:GWW) shareholders have witnessed a decrease in enthusiasm from smart money recently. GWW was in 26 hedge funds' portfolios at the end of the first quarter of 2020. There were 29 hedge funds in our database with GWW positions at the end of the previous quarter. Our calculations also showed that GWW isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_258236" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's analyze the recent hedge fund action regarding W.W. Grainger, Inc. (NYSE:GWW).
What have hedge funds been doing with W.W. Grainger, Inc. (NYSE:GWW)?
At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in GWW a year ago. 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 publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin's Citadel Investment Group has the biggest position in W.W. Grainger, Inc. (NYSE:GWW), worth close to $131.9 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $80.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions include John Overdeck and David Siegel's Two Sigma Advisors, Gregg Moskowitz's Interval Partners and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Interval Partners allocated the biggest weight to W.W. Grainger, Inc. (NYSE:GWW), around 1.83% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, setting aside 0.75 percent of its 13F equity portfolio to GWW.
Since W.W. Grainger, Inc. (NYSE:GWW) has experienced declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of fund managers that elected to cut their full holdings in the first quarter. Interestingly, Noam Gottesman's GLG Partners dumped the largest position of the "upper crust" of funds watched by Insider Monkey, valued at an estimated $14 million in stock. Kamyar Khajavi's fund, MIK Capital, also cut its stock, about $6.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 3 funds in the first quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as W.W. Grainger, Inc. (NYSE:GWW) but similarly valued. These stocks are CDW Corporation (NASDAQ:CDW), Deutsche Bank AG (NYSE:DB), BioNTech SE (NASDAQ:BNTX), and Maxim Integrated Products Inc. (NASDAQ:MXIM). This group of stocks' market valuations match GWW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CDW,36,947126,6 DB,12,916383,0 BNTX,6,37923,2 MXIM,30,213575,-2 Average,21,528752,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $529 million. That figure was $346 million in GWW's case. CDW Corporation (NASDAQ:CDW) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 6 bullish hedge fund positions. W.W. Grainger, Inc. (NYSE:GWW) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on GWW as the stock returned 25.2% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.