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Was The Smart Money Right About Crowding Into SYSCO Corporation (SYY)?

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Reymerlyn Martin
·6 min read
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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 SYSCO Corporation (NYSE:SYY).

Is SYSCO Corporation (NYSE:SYY) worth your attention right now? The smart money was in a bullish mood. The number of long hedge fund bets went up by 7 in recent months. SYSCO Corporation (NYSE:SYY) was in 42 hedge funds' portfolios at the end of June. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SYY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In today’s marketplace there are plenty of gauges market participants can use to grade their stock investments. A duo of the less known gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best fund managers can trounce their index-focused peers by a very impressive margin (see the details here).

David Tepper of Appaloosa Management LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to review the latest hedge fund action surrounding SYSCO Corporation (NYSE:SYY).

Hedge fund activity in SYSCO Corporation (NYSE:SYY)

At the end of June, a total of 42 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in SYY a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in SYSCO Corporation (NYSE:SYY) was held by Trian Partners, which reported holding $1332.6 million worth of stock at the end of September. It was followed by Yacktman Asset Management with a $314.1 million position. Other investors bullish on the company included Appaloosa Management LP, Alyeska Investment Group, and Southpoint Capital Advisors. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to SYSCO Corporation (NYSE:SYY), around 27.62% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, setting aside 5.01 percent of its 13F equity portfolio to SYY.

Consequently, key hedge funds have jumped into SYSCO Corporation (NYSE:SYY) headfirst. Appaloosa Management LP, managed by David Tepper, assembled the biggest position in SYSCO Corporation (NYSE:SYY). Appaloosa Management LP had $102.5 million invested in the company at the end of the quarter. John Smith Clark's Southpoint Capital Advisors also initiated a $43.7 million position during the quarter. The following funds were also among the new SYY investors: Dmitry Balyasny's Balyasny Asset Management, Scott Ferguson's Sachem Head Capital, and Donald Sussman's Paloma Partners.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as SYSCO Corporation (NYSE:SYY) but similarly valued. These stocks are Cintas Corporation (NASDAQ:CTAS), WEC Energy Group, Inc. (NYSE:WEC), The Clorox Company (NYSE:CLX), Verisk Analytics, Inc. (NASDAQ:VRSK), IAC/InterActiveCorp (NASDAQ:IAC), Agilent Technologies Inc. (NYSE:A), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks' market valuations are closest to SYY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTAS,34,531899,-8 WEC,30,290696,1 CLX,36,1488687,-5 VRSK,36,981827,5 IAC,60,4955863,3 A,38,2815048,3 PAYX,36,877442,-5 Average,38.6,1705923,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1706 million. That figure was $2177 million in SYY's case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 30 bullish hedge fund positions. SYSCO Corporation (NYSE:SYY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SYY is 60. 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. 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 gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on SYY as the stock returned 20.4% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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