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Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards The Hershey Company (NYSE:HSY).
Is HSY stock a buy or sell? Hedge funds were cutting their exposure. The number of long hedge fund bets were trimmed by 4 recently. The Hershey Company (NYSE:HSY) was in 39 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 43. Our calculations also showed that HSY isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 43 hedge funds in our database with HSY holdings at the end of September.
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 124 percentage points since March 2017 (see the details here).
Ken Griffin of Citadel Investment Group
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to take a look at the new hedge fund action encompassing The Hershey Company (NYSE:HSY).
Do Hedge Funds Think HSY Is A Good Stock To Buy Now?
At Q4's end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HSY over the last 22 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in The Hershey Company (NYSE:HSY). Renaissance Technologies has a $515.1 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, managed by Ken Griffin, which holds a $247.3 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish encompass Israel Englander's Millennium Management, Cliff Asness's AQR Capital Management and Dmitry Balyasny's Balyasny Asset Management. In terms of the portfolio weights assigned to each position CSat Investment Advisory allocated the biggest weight to The Hershey Company (NYSE:HSY), around 2.27% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, designating 0.67 percent of its 13F equity portfolio to HSY.
Because The Hershey Company (NYSE:HSY) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few fund managers who sold off their full holdings heading into Q1. Interestingly, Anand Parekh's Alyeska Investment Group cut the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $9.3 million in stock, and Brian Scudieri's Kehrs Ridge Capital was right behind this move, as the fund dropped about $7.4 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 4 funds heading into Q1.
Let's also examine hedge fund activity in other stocks similar to The Hershey Company (NYSE:HSY). We will take a look at Orange SA (NYSE:ORAN), New Oriental Education & Technology Group Inc. (NYSE:EDU), Seagen Inc. (NASDAQ:SGEN), SBA Communications Corporation (NASDAQ:SBAC), Royalty Pharma Plc (NASDAQ:RPRX), ANSYS, Inc. (NASDAQ:ANSS), and AFLAC Incorporated (NYSE:AFL). This group of stocks' market valuations are closest to HSY's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORAN,3,6060,-1 EDU,43,2540561,3 SGEN,32,8619222,4 SBAC,43,1761954,0 RPRX,18,3384693,-2 ANSS,40,1633274,0 AFL,35,389034,1 Average,30.6,2619257,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.6 hedge funds with bullish positions and the average amount invested in these stocks was $2619 million. That figure was $1411 million in HSY's case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Orange SA (NYSE:ORAN) is the least popular one with only 3 bullish hedge fund positions. The Hershey Company (NYSE:HSY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HSY is 73.2. 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 positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately HSY wasn't nearly as popular as these 30 stocks and hedge funds that were betting on HSY were disappointed as the stock returned 2.1% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.