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Were These Hedge Funds Right About Loading Up On Flex Ltd. (FLEX)?

Asma UL Husna
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Flex Ltd. (NASDAQ:FLEX).

Flex Ltd. (NASDAQ:FLEX) investors should pay attention to an increase in enthusiasm from smart money in recent months. Flex Ltd. (NASDAQ:FLEX) was in 34 hedge funds' portfolios at the end of June. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FLEX 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 multitude of formulas stock traders put to use to size up stocks. Two of the most under-the-radar formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite investment managers can beat the S&P 500 by a significant amount (see the details here).

Scott Ferguson Sachem Head Capital
Scott Ferguson Sachem Head Capital

Scott Ferguson of Sachem Head Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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. Now let's view the latest hedge fund action surrounding Flex Ltd. (NASDAQ:FLEX).

Hedge fund activity in Flex Ltd. (NASDAQ:FLEX)

At second quarter's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FLEX over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Pzena Investment Management was the largest shareholder of Flex Ltd. (NASDAQ:FLEX), with a stake worth $180.1 million reported as of the end of June. Trailing Pzena Investment Management was Lyrical Asset Management, which amassed a stake valued at $169.9 million. Iridian Asset Management, Sachem Head Capital, and D E Shaw 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 Nishkama Capital allocated the biggest weight to Flex Ltd. (NASDAQ:FLEX), around 12.67% of its 13F portfolio. Sachem Head Capital is also relatively very bullish on the stock, setting aside 5.25 percent of its 13F equity portfolio to FLEX.

Consequently, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, created the largest position in Flex Ltd. (NASDAQ:FLEX). Point72 Asset Management had $32.4 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $19.8 million position during the quarter. The other funds with brand new FLEX positions are Renaissance Technologies, Michael Rockefeller and KarláKroeker's Woodline Partners, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Flex Ltd. (NASDAQ:FLEX) but similarly valued. These stocks are Apache Corporation (NASDAQ:APA), Hyatt Hotels Corporation (NYSE:H), Rexford Industrial Realty Inc (NYSE:REXR), ITT Inc. (NYSE:ITT), Brunswick Corporation (NYSE:BC), National Instruments Corporation (NASDAQ:NATI), and CDK Global Inc (NASDAQ:CDK). All of these stocks' market caps are similar to FLEX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APA,40,590803,5 H,27,468490,3 REXR,24,179158,9 ITT,25,512144,-3 BC,35,1425715,12 NATI,35,259007,6 CDK,32,323704,8 Average,31.1,537003,5.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.1 hedge funds with bullish positions and the average amount invested in these stocks was $537 million. That figure was $942 million in FLEX's case. Apache Corporation (NASDAQ:APA) is the most popular stock in this table. On the other hand Rexford Industrial Realty Inc (NYSE:REXR) is the least popular one with only 24 bullish hedge fund positions. Flex Ltd. (NASDAQ:FLEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FLEX is 71.3. 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 FLEX as the stock returned 38% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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