U.S. Markets closed

Were Hedge Funds Right About Piling Into Jabil Inc. (JBL)?

Reymerlyn Martin

Hedge funds run by legendary names like George Soros and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That's why we pay special attention to hedge fund activity in these stocks.

Jabil Inc. (NYSE:JBL) investors should pay attention to an increase in hedge fund sentiment in recent months. Our calculations also showed that JBL isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Richard Pzena - Pzena Investment Management

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the latest hedge fund action surrounding Jabil Inc. (NYSE:JBL).

How have hedgies been trading Jabil Inc. (NYSE:JBL)?

Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards JBL over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

JBL_oct2019

Among these funds, AQR Capital Management held the most valuable stake in Jabil Inc. (NYSE:JBL), which was worth $128.8 million at the end of the second quarter. On the second spot was Pzena Investment Management which amassed $46 million worth of shares. Moreover, Adage Capital Management, Millennium Management, and Shellback Capital were also bullish on Jabil Inc. (NYSE:JBL), allocating a large percentage of their portfolios to this stock.

Now, key hedge funds have been driving this bullishness. Shellback Capital, managed by Doug Gordon, Jon Hilsabeck and Don Jabro, initiated the most valuable position in Jabil Inc. (NYSE:JBL). Shellback Capital had $14.6 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Michael Kharitonov and Jon David McAuliffe's Voleon Capital, and Hoon Kim's Quantinno Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Jabil Inc. (NYSE:JBL) but similarly valued. These stocks are Seaboard Corporation (NYSEAMEX:SEB), MGIC Investment Corporation (NYSE:MTG), Cyberark Software Ltd (NASDAQ:CYBR), and ONE Gas Inc (NYSE:OGS). This group of stocks' market caps are similar to JBL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SEB,16,136523,5 MTG,35,492429,3 CYBR,19,308110,-9 OGS,14,93848,-1 Average,21,257728,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $315 million in JBL's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 14 bullish hedge fund positions. Jabil Inc. (NYSE:JBL) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on JBL as the stock returned 13.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

Related Content