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Were Hedge Funds Right About Buying The J.M. Smucker Company (SJM)?

Reymerlyn Martin
·6 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether The J.M. Smucker Company (NYSE:SJM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

The J.M. Smucker Company (NYSE:SJM) was in 38 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 47. SJM shareholders have witnessed an increase in support from the world's most elite money managers recently. There were 36 hedge funds in our database with SJM holdings at the end of March. Our calculations also showed that SJM 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 the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Harnisch
William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world to pick the best large-cap 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. Keeping this in mind let's take a gander at the fresh hedge fund action surrounding The J.M. Smucker Company (NYSE:SJM).

How have hedgies been trading The J.M. Smucker Company (NYSE:SJM)?

At Q2's end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SJM over the last 20 quarters. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is SJM A Good Stock To Buy?
Is SJM A Good Stock To Buy?

The largest stake in The J.M. Smucker Company (NYSE:SJM) was held by Renaissance Technologies, which reported holding $146.7 million worth of stock at the end of June. It was followed by Ariel Investments with a $113.9 million position. Other investors bullish on the company included AQR Capital Management, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to The J.M. Smucker Company (NYSE:SJM), around 1.73% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to SJM.

Consequently, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in The J.M. Smucker Company (NYSE:SJM). Arrowstreet Capital had $2.3 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $2.2 million position during the quarter. The following funds were also among the new SJM investors: Charles de Vaulx's International Value Advisers, William Harnisch's Peconic Partners LLC, and Qing Li's Sciencast Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as The J.M. Smucker Company (NYSE:SJM) but similarly valued. These stocks are W.P. Carey Inc. (NYSE:WPC), LINE Corporation (NYSE:LN), Catalent Inc (NYSE:CTLT), NVR, Inc. (NYSE:NVR), HEICO Corporation (NYSE:HEI), Alliant Energy Corporation (NASDAQ:LNT), and Extra Space Storage, Inc. (NYSE:EXR). This group of stocks' market values resemble SJM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPC,23,93673,1 LN,8,116785,1 CTLT,35,490420,8 NVR,39,939775,5 HEI,46,667415,7 LNT,23,377241,-7 EXR,27,176001,11 Average,28.7,408759,3.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $674 million in SJM's case. HEICO Corporation (NYSE:HEI) is the most popular stock in this table. On the other hand LINE Corporation (NYSE:LN) is the least popular one with only 8 bullish hedge fund positions. The J.M. Smucker Company (NYSE:SJM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SJM is 70.7. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on SJM, though not to the same extent, as the stock returned 6.9% since Q2 (through October 30th) and outperformed the market as well.

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

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