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Were Hedge Funds Right About Diageo plc (DEO)?

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  • DEO

The Insider Monkey team has completed processing the quarterly 13F filings for the June quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Diageo plc (NYSE:DEO).

Is Diageo plc (NYSE:DEO) a healthy stock for your portfolio? The best stock pickers were becoming less hopeful. The number of long hedge fund bets were cut by 2 lately. Diageo plc (NYSE:DEO) was in 20 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 25. Our calculations also showed that DEO isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 22 hedge funds in our database with DEO holdings at the end of March.

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 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV 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 surrounding Diageo plc (NYSE:DEO).

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

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards DEO over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DEO A Good Stock To Buy?
Is DEO A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Markel Gayner Asset Management, managed by Tom Gayner, holds the biggest position in Diageo plc (NYSE:DEO). Markel Gayner Asset Management has a $258.8 million position in the stock, comprising 3.3% of its 13F portfolio. The second largest stake is held by Nicolai Tangen of Ako Capital, with a $245.8 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Other professional money managers that are bullish encompass William B. Gray's Orbis Investment Management, Mario Gabelli's GAMCO Investors and Ken Fisher's Fisher Asset Management. In terms of the portfolio weights assigned to each position Markel Gayner Asset Management allocated the biggest weight to Diageo plc (NYSE:DEO), around 3.3% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, setting aside 2.77 percent of its 13F equity portfolio to DEO.

Seeing as Diageo plc (NYSE:DEO) has witnessed a decline in interest from the entirety of the hedge funds we track, it's safe to say that there were a few hedgies that slashed their entire stakes in the second quarter. Intriguingly, Terry Smith's Fundsmith Long/Short Fund cut the biggest position of all the hedgies followed by Insider Monkey, totaling close to $3.8 million in stock, and D. E. Shaw's D E Shaw was right behind this move, as the fund dumped about $2.9 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds in the second quarter.

Let's go over hedge fund activity in other stocks similar to Diageo plc (NYSE:DEO). We will take a look at Square, Inc. (NYSE:SQ), Deere & Company (NYSE:DE), CVS Health Corporation (NYSE:CVS), Intuitive Surgical, Inc. (NASDAQ:ISRG), ServiceNow Inc (NYSE:NOW), Snap Inc. (NYSE:SNAP), and Lockheed Martin Corporation (NYSE:LMT). All of these stocks' market caps are closest to DEO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SQ,94,10327761,2 DE,52,2173962,1 CVS,67,1355477,5 ISRG,60,3475820,7 NOW,91,7011424,-7 SNAP,64,5399955,-9 LMT,58,1565723,8 Average,69.4,4472875,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 69.4 hedge funds with bullish positions and the average amount invested in these stocks was $4473 million. That figure was $891 million in DEO's case. Square, Inc. (NYSE:SQ) is the most popular stock in this table. On the other hand Deere & Company (NYSE:DE) is the least popular one with only 52 bullish hedge fund positions. Compared to these stocks Diageo plc (NYSE:DEO) is even less popular than DE. Our overall hedge fund sentiment score for DEO is 27. 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. Hedge funds clearly dropped the ball on DEO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on DEO as the stock returned 8.1% since Q2 (through November 5th) and outperformed the market by an even larger margin.

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