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Were Hedge Funds Right About Broadcom Inc (AVGO)?

Abigail Fisher

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of Broadcom Inc (NASDAQ:AVGO) based on that data.

Broadcom Inc (NASDAQ:AVGO) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that AVGO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_26992" align="aligncenter" width="399"] David Tepper of Appaloosa Management LP[/caption]

APPALOOSA MANAGEMENT LP

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager's coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's analyze the latest hedge fund action regarding Broadcom Inc (NASDAQ:AVGO).

How have hedgies been trading Broadcom Inc (NASDAQ:AVGO)?

Heading into the first quarter of 2020, a total of 61 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in AVGO over the last 18 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, First Pacific Advisors LLC held the most valuable stake in Broadcom Inc (NASDAQ:AVGO), which was worth $462.8 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $368 million worth of shares. Lyrical Asset Management, Citadel Investment Group, and Coatue Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Crescent Park Management allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 7.57% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, earmarking 7.32 percent of its 13F equity portfolio to AVGO.

With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. GQG Partners, managed by Rajiv Jain, created the biggest position in Broadcom Inc (NASDAQ:AVGO). GQG Partners had $135.6 million invested in the company at the end of the quarter. Charles Clough's Clough Capital Partners also made a $34.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Howard Marks's Oaktree Capital Management, David Tepper's Appaloosa Management LP, and Qing Li's Sciencast Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. These stocks are Union Pacific Corporation (NYSE:UNP), ASML Holding N.V. (NASDAQ:ASML), Texas Instruments Incorporated (NASDAQ:TXN), and BHP Group (NYSE:BBL). This group of stocks' market valuations are similar to AVGO's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UNP,65,5313051,-4 ASML,22,1133071,7 TXN,50,2386926,-10 BBL,24,1238737,2 Average,40.25,2517946,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $2518 million. That figure was $2514 million in AVGO's case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 22 bullish hedge fund positions. Broadcom Inc (NASDAQ:AVGO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately AVGO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on AVGO were disappointed as the stock returned -16.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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