"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Macy's, Inc. (NYSE:M) a buy right now? Money managers are taking an optimistic view. The number of long hedge fund bets rose by 1 lately. Our calculations also showed that M isn't among the 30 most popular stocks among hedge funds. M was in 30 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 29 hedge funds in our database with M positions at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to go over the recent hedge fund action surrounding Macy's, Inc. (NYSE:M).
How are hedge funds trading Macy's, Inc. (NYSE:M)?
At Q4's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the second quarter of 2018. By comparison, 27 hedge funds held shares or bullish call options in M a year ago. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Macy's, Inc. (NYSE:M), which was worth $512.7 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $107.8 million worth of shares. Moreover, Citadel Investment Group, Impala Asset Management, and Arrowstreet Capital were also bullish on Macy's, Inc. (NYSE:M), allocating a large percentage of their portfolios to this stock.
Now, some big names were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the largest position in Macy's, Inc. (NYSE:M). Citadel Investment Group had $66.3 million invested in the company at the end of the quarter. Gregg Moskowitz's Interval Partners also initiated a $11.9 million position during the quarter. The other funds with new positions in the stock are Anthony Joseph Vaccarino's North Fourth Asset Management, Peter S. Stamos's Stamos Capital, and John Brandmeyer's Cognios Capital.
Let's check out hedge fund activity in other stocks similar to Macy's, Inc. (NYSE:M). We will take a look at AGNC Investment Corp. (NASDAQ:AGNC), Molson Coors Brewing Company (NYSE:TAP), Seattle Genetics, Inc. (NASDAQ:SGEN), and Steris Plc (NYSE:STE). This group of stocks' market caps match M's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGNC,21,407136,6 TAP,28,447339,-3 SGEN,16,3168012,1 STE,22,296557,1 Average,21.75,1079761,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $1080 million. That figure was $857 million in M's case. Molson Coors Brewing Company (NYSE:TAP) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Macy's, Inc. (NYSE:M) is more popular among hedge funds though hedge fund sentiment towards the stock is still near its all time lows. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Unfortunately Macy's wasn't in this group. Hedge funds that bet on Macy's were disappointed as the stock lost 12.5% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 12 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.