The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Snap-on Incorporated (NYSE:SNA) from the perspective of those elite funds.
Hedge fund interest in Snap-on Incorporated (NYSE:SNA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare SNA to other stocks including Albemarle Corporation (NYSE:ALB), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), and Bausch Health Companies Inc. (NYSE:BHC) to get a better sense of its popularity.
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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]
We're going to review the new hedge fund action surrounding Snap-on Incorporated (NYSE:SNA).
What have hedge funds been doing with Snap-on Incorporated (NYSE:SNA)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in SNA a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Ariel Investments was the largest shareholder of Snap-on Incorporated (NYSE:SNA), with a stake worth $132.7 million reported as of the end of March. Trailing Ariel Investments was AQR Capital Management, which amassed a stake valued at $79.8 million. Gates Capital Management, East Side Capital (RR Partners), and Pzena Investment Management were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Snap-on Incorporated (NYSE:SNA) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain "tier" of hedge funds that slashed their entire stakes heading into Q3. At the top of the heap, Phill Gross and Robert Atchinson's Adage Capital Management sold off the largest investment of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $9.9 million in stock, and Ray Dalio's Bridgewater Associates was right behind this move, as the fund said goodbye to about $4.5 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Snap-on Incorporated (NYSE:SNA) but similarly valued. We will take a look at Albemarle Corporation (NYSE:ALB), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), Bausch Health Companies Inc. (NYSE:BHC), and Andeavor Logistics LP (NYSE:ANDX). All of these stocks' market caps are closest to SNA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALB,25,186420,-3 AVAL,8,15040,-1 BHC,31,1801427,-1 ANDX,6,7757,0 Average,17.5,502661,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $503 million. That figure was $499 million in SNA's case. Bausch Health Companies Inc. (NYSE:BHC) is the most popular stock in this table. On the other hand Andeavor Logistics LP (NYSE:ANDX) is the least popular one with only 6 bullish hedge fund positions. Snap-on Incorporated (NYSE:SNA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on SNA, though not to the same extent, as the stock returned 0.9% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.