We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Jacobs Engineering Group Inc (NYSE:JEC).
Jacobs Engineering Group Inc (NYSE:JEC) investors should pay attention to a decrease in hedge fund interest in recent months. JEC was in 29 hedge funds' portfolios at the end of September. There were 32 hedge funds in our database with JEC positions at the end of the previous quarter. Our calculations also showed that JEC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_670377" align="aligncenter" width="1613"] Aaron Cowen of Suvretta Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the fresh hedge fund action regarding Jacobs Engineering Group Inc (NYSE:JEC).
How have hedgies been trading Jacobs Engineering Group Inc (NYSE:JEC)?
Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in JEC over the last 17 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Jacobs Engineering Group Inc (NYSE:JEC), which was worth $510.2 million at the end of the third quarter. On the second spot was Suvretta Capital Management which amassed $132.5 million worth of shares. Scopus Asset Management, Valinor Management, and Samlyn Capital 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 Lodge Hill Capital allocated the biggest weight to Jacobs Engineering Group Inc (NYSE:JEC), around 5.26% of its portfolio. Sunriver Management is also relatively very bullish on the stock, setting aside 4.85 percent of its 13F equity portfolio to JEC.
Because Jacobs Engineering Group Inc (NYSE:JEC) has experienced bearish sentiment from the smart money, it's easy to see that there is a sect of hedge funds that elected to cut their entire stakes by the end of the third quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the biggest stake of the 750 funds monitored by Insider Monkey, valued at close to $24.8 million in stock, and Daniel Arbess's Perella Weinberg Partners was right behind this move, as the fund dropped about $6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to Jacobs Engineering Group Inc (NYSE:JEC). These stocks are MarketAxess Holdings Inc. (NASDAQ:MKTX), Leidos Holdings Inc (NYSE:LDOS), Duke Realty Corporation (NYSE:DRE), and Steris Plc (NYSE:STE). This group of stocks' market valuations are similar to JEC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MKTX,24,470073,6 LDOS,24,439384,1 DRE,16,170834,-7 STE,28,388702,6 Average,23,367248,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $367 million. That figure was $1023 million in JEC's case. Steris Plc (NYSE:STE) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Jacobs Engineering Group Inc (NYSE:JEC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately JEC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on JEC were disappointed as the stock returned 0.8% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.