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Hedge Funds Were Selling Garmin Ltd. (GRMN) Before The Coronavirus

Asma UL Husna

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of Garmin Ltd. (NASDAQ:GRMN) based on that data.

Garmin Ltd. (NASDAQ:GRMN) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that GRMN isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_746893" align="aligncenter" width="399"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a glance at the latest hedge fund action surrounding Garmin Ltd. (NASDAQ:GRMN).

Hedge fund activity in Garmin Ltd. (NASDAQ:GRMN)

Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GRMN over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in Garmin Ltd. (NASDAQ:GRMN), which was worth $121 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $120.3 million worth of shares. Marshall Wace LLP, D E Shaw, and Whale Rock Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Garmin Ltd. (NASDAQ:GRMN), around 0.76% of its 13F portfolio. Whale Rock Capital Management is also relatively very bullish on the stock, designating 0.56 percent of its 13F equity portfolio to GRMN.

Due to the fact that Garmin Ltd. (NASDAQ:GRMN) has experienced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of money managers who sold off their full holdings last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest stake of the 750 funds monitored by Insider Monkey, comprising about $6.4 million in stock. Lee Ainslie's fund, Maverick Capital, also sold off its stock, about $3.6 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Garmin Ltd. (NASDAQ:GRMN) but similarly valued. We will take a look at Fortinet Inc (NASDAQ:FTNT), ZTO Express (Cayman) Inc. (NYSE:ZTO), W.W. Grainger, Inc. (NYSE:GWW), and International Paper Company (NYSE:IP). This group of stocks' market values resemble GRMN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FTNT,42,1764894,1 ZTO,14,497928,-6 GWW,29,700506,4 IP,25,272873,-3 Average,27.5,809050,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $809 million. That figure was $510 million in GRMN's case. Fortinet Inc (NASDAQ:FTNT) is the most popular stock in this table. On the other hand ZTO Express (Cayman) Inc. (NYSE:ZTO) is the least popular one with only 14 bullish hedge fund positions. Garmin Ltd. (NASDAQ:GRMN) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately GRMN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GRMN investors were disappointed as the stock returned -26.8% during the same time period 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 most of these stocks already outperformed the market in Q1.

5 Most Popular Stocks Among Hedge Funds

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.


Disclosure: None. This article was originally published at Insider Monkey.

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