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Did Hedge Funds Make The Right Call On Garmin Ltd. (GRMN) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Garmin Ltd. (NASDAQ:GRMN) and determine whether hedge funds skillfully traded this stock.

Garmin Ltd. (NASDAQ:GRMN) was in 27 hedge funds’ portfolios at the end of March. GRMN shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. There were 26 hedge funds in our database with GRMN positions at the end of the previous quarter. Our calculations also showed that GRMN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

New York Stock Exchange

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the key hedge fund action regarding Garmin Ltd. (NASDAQ:GRMN).

How have hedgies been trading Garmin Ltd. (NASDAQ:GRMN)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GRMN over the last 18 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Select Equity Group held the most valuable stake in Garmin Ltd. (NASDAQ:GRMN), which was worth $150.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $72.2 million worth of shares. Renaissance Technologies, D E Shaw, and Hosking Partners 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 Greenvale Capital allocated the biggest weight to Garmin Ltd. (NASDAQ:GRMN), around 3.94% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, designating 1.04 percent of its 13F equity portfolio to GRMN.

Consequently, key money managers were leading the bulls’ herd. Greenvale Capital, managed by Bruce Emery, assembled the largest position in Garmin Ltd. (NASDAQ:GRMN). Greenvale Capital had $15 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also made a $2.8 million investment in the stock during the quarter. The other funds with brand new GRMN positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Mike Vranos’s Ellington, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s go over hedge fund activity in other stocks similar to Garmin Ltd. (NASDAQ:GRMN). We will take a look at Conagra Brands, Inc. (NYSE:CAG), First Republic Bank (NYSE:FRC), Altice USA, Inc. (NYSE:ATUS), and Cardinal Health, Inc. (NYSE:CAH). This group of stocks’ market valuations are similar to GRMN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAG 30 538429 1
FRC 28 916056 1
ATUS 47 2396363 -7
CAH 44 792889 10
Average 37.25 1160934 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $1161 million. That figure was $394 million in GRMN’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand First Republic Bank (NYSE:FRC) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks Garmin Ltd. (NASDAQ:GRMN) is even less popular than FRC. Hedge funds clearly dropped the ball on GRMN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on GRMN as the stock returned 30.9% in the second quarter and outperformed the market by an even larger margin.

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