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Was The Smart Money Right About Piling Into Deere & Company (DE)?

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·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 Deere & Company (NYSE:DE).

Deere & Company (NYSE:DE) has seen an increase in enthusiasm from smart money recently. Deere & Company (NYSE:DE) was in 54 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 51. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that DE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was 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). So you can still find a lot of gems by following hedge funds' moves today.

Tom Gayner
Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we're going to view the fresh hedge fund action regarding Deere & Company (NYSE:DE).

Do Hedge Funds Think DE Is A Good Stock To Buy Now?

At Q4's end, a total of 54 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DE over the last 22 quarters. With the smart money's capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Deere & Company (NYSE:DE) was held by Greenhaven Associates, which reported holding $384.8 million worth of stock at the end of December. It was followed by Markel Gayner Asset Management with a $203.3 million position. Other investors bullish on the company included Impax Asset Management, Citadel Investment Group, and Adage Capital Management. In terms of the portfolio weights assigned to each position Engine No. 1 LLC allocated the biggest weight to Deere & Company (NYSE:DE), around 8.86% of its 13F portfolio. Greenhaven Associates is also relatively very bullish on the stock, dishing out 7.25 percent of its 13F equity portfolio to DE.

As aggregate interest increased, some big names were breaking ground themselves. Shellback Capital, managed by Doug Gordon, Jon Hilsabeck and Don Jabro, assembled the biggest position in Deere & Company (NYSE:DE). Shellback Capital had $45.7 million invested in the company at the end of the quarter. Chris James's Engine No. 1 LLC also initiated a $20.5 million position during the quarter. The following funds were also among the new DE investors: Renaissance Technologies, Till Bechtolsheimer's Arosa Capital Management, and Qing Li's Sciencast Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Deere & Company (NYSE:DE) but similarly valued. We will take a look at Micron Technology, Inc. (NASDAQ:MU), Mondelez International Inc (NASDAQ:MDLZ), Mercadolibre Inc (NASDAQ:MELI), The TJX Companies, Inc. (NYSE:TJX), Anthem Inc (NYSE:ANTM), Snowflake Inc (NYSE:SNOW), and S&P Global Inc. (NYSE:SPGI). All of these stocks' market caps resemble DE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MU,100,8144429,21 MDLZ,50,2626457,0 MELI,79,8766711,-2 TJX,68,2297227,-10 ANTM,70,5186728,5 SNOW,54,7723382,-5 SPGI,75,3807859,4 Average,70.9,5507542,1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 70.9 hedge funds with bullish positions and the average amount invested in these stocks was $5508 million. That figure was $1804 million in DE's case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Mondelez International Inc (NASDAQ:MDLZ) is the least popular one with only 50 bullish hedge fund positions. Deere & Company (NYSE:DE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DE is 44. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on DE as the stock returned 38.2% since the end of the fourth quarter (through 4/30) and outperformed the market by an even larger margin.

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

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