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In this article we will take a look at whether hedge funds think Macy's, Inc. (NYSE:M) 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.
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.
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 take a glance at the latest hedge fund action regarding Macy's, Inc. (NYSE:M).
Hedge fund activity in Macy's, Inc. (NYSE:M)
Heading into the second quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in M over the last 18 quarters. With hedge funds' sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Yacktman Asset Management, managed by Donald Yacktman, holds the most valuable position in Macy's, Inc. (NYSE:M). Yacktman Asset Management has a $223.2 million position in the stock, comprising 3.7% of its 13F portfolio. Coming in second is Stephen Mildenhall of Contrarius Investment Management, with a $51.8 million position; the fund has 6.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism comprise John Overdeck and David Siegel's Two Sigma Advisors, Renaissance Technologies and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Contrarius Investment Management allocated the biggest weight to Macy's, Inc. (NYSE:M), around 6.64% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, setting aside 3.7 percent of its 13F equity portfolio to M.
Judging by the fact that Macy's, Inc. (NYSE:M) has witnessed falling interest from the smart money, it's safe to say that there lies a certain "tier" of hedge funds who sold off their positions entirely in the first quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dumped the largest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $29.9 million in stock. James Parsons's fund, Junto Capital Management, also sold off its stock, about $25.2 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the first quarter.
Let's check out hedge fund activity in other stocks similar to Macy's, Inc. (NYSE:M). We will take a look at Aaron's, Inc. (NYSE:AAN), First Midwest Bancorp Inc (NASDAQ:FMBI), Workiva Inc (NYSE:WK), and Central Garden & Pet Co (NASDAQ:CENT). All of these stocks' market caps resemble M's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAN,25,163879,-7 FMBI,11,37778,0 WK,16,125379,-1 CENT,19,108821,2 Average,17.75,108964,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $356 million in M's case. Aaron's, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Macy's, Inc. (NYSE:M) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on M as the stock returned 29.5% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.