2019 Review: Top Hedge Fund Stocks vs. Broadcom Inc (AVGO)

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Broadcom Inc (NASDAQ:AVGO) and see how the stock performed in comparison to hedge funds’ consensus picks.

Broadcom Inc (NASDAQ:AVGO) shareholders have witnessed an increase in hedge fund sentiment in recent months. AVGO was in 54 hedge funds’ portfolios at the end of the third quarter of 2019. There were 53 hedge funds in our database with AVGO positions at the end of the previous quarter. Our calculations also showed that AVGO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s go over the fresh hedge fund action surrounding Broadcom Inc (NASDAQ:AVGO).

What have hedge funds been doing with Broadcom Inc (NASDAQ:AVGO)?

At Q3’s end, a total of 54 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 49 hedge funds with a bullish position in AVGO a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is AVGO A Good Stock To Buy?

More specifically, First Pacific Advisors was the largest shareholder of Broadcom Inc (NASDAQ:AVGO), with a stake worth $430.3 million reported as of the end of September. Trailing First Pacific Advisors was Lyrical Asset Management, which amassed a stake valued at $397.8 million. Cantillon Capital 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 Isomer Partners allocated the biggest weight to Broadcom Inc (NASDAQ:AVGO), around 8.63% of its 13F portfolio. 40 North Management is also relatively very bullish on the stock, designating 8.09 percent of its 13F equity portfolio to AVGO.

Consequently, key money managers were breaking ground themselves. Appaloosa Management, managed by David Tepper, established the biggest position in Broadcom Inc (NASDAQ:AVGO). Appaloosa Management had $75.9 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $38.6 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Karim Abbadi and Edward McBride’s Centiva Capital, and Matthew Tewksbury’s Stevens Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Broadcom Inc (NASDAQ:AVGO) but similarly valued. We will take a look at BHP Billiton plc (NYSE:BBL), Eli Lilly and Company (NYSE:LLY), GlaxoSmithKline plc (NYSE:GSK), and Toronto-Dominion Bank (NYSE:TD). This group of stocks’ market caps match AVGO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BBL 21 970915 1
LLY 41 1489505 -2
GSK 26 1891012 1
TD 15 295029 -3
Average 25.75 1161615 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $1162 million. That figure was $2515 million in AVGO’s case. Eli Lilly and Company (NYSE:LLY) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Broadcom Inc (NASDAQ:AVGO) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately AVGO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AVGO were disappointed as the stock returned 30.5% so far in 2019 (through 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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