2019 Review: Top Hedge Fund Stocks vs. The Procter & Gamble Company (PG)

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds’ top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like The Procter & Gamble Company (NYSE:PG).

Is The Procter & Gamble Company (NYSE:PG) undervalued? The smart money is getting more bullish. The number of bullish hedge fund bets inched up by 8 lately. Our calculations also showed that PG 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). PG was in 66 hedge funds’ portfolios at the end of the third quarter of 2019. There were 58 hedge funds in our database with PG positions at the end of the previous quarter.

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.


Nelson Peltz of Trian Partners

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. Now we’re going to check out the latest hedge fund action regarding The Procter & Gamble Company (NYSE:PG).

How have hedgies been trading The Procter & Gamble Company (NYSE:PG)?

Heading into the fourth quarter of 2019, a total of 66 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. By comparison, 53 hedge funds held shares or bullish call options in PG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Trian Partners held the most valuable stake in The Procter & Gamble Company (NYSE:PG), which was worth $4556.1 million at the end of the third quarter. On the second spot was Cedar Rock Capital which amassed $1502.2 million worth of shares. AQR Capital Management, Yacktman Asset Management, and Fisher Asset 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 Trian Partners allocated the biggest weight to The Procter & Gamble Company (NYSE:PG), around 47.56% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, designating 34.81 percent of its 13F equity portfolio to PG.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Thames Capital Management, managed by Jay Genzer, assembled the largest position in The Procter & Gamble Company (NYSE:PG). Thames Capital Management had $7.5 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $3.8 million position during the quarter. The other funds with brand new PG positions are Donald Sussman’s Paloma Partners, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Anand Parekh’s Alyeska Investment Group.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Procter & Gamble Company (NYSE:PG) but similarly valued. We will take a look at Exxon Mobil Corporation (NYSE:XOM), AT&T Inc. (NYSE:T), Mastercard Incorporated (NYSE:MA), and Bank of America Corporation (NYSE:BAC). This group of stocks’ market values are similar to PG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XOM 48 1365038 -2
T 46 1515476 4
MA 114 13206727 15
BAC 95 32049756 1
Average 75.75 12034249 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 75.75 hedge funds with bullish positions and the average amount invested in these stocks was $12034 million. That figure was $11537 million in PG’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 46 bullish hedge fund positions. The Procter & Gamble Company (NYSE:PG) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on PG, though not to the same extent, as the stock returned 39.7% in 2019 (as of 12/23) and outperformed the market.
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.