Did Hedge Funds Make The Right Call On Macy’s, Inc. (M) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMacy’s, Inc. (NYSE:M) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Macy’s, Inc. (NYSE:M) was in 30 hedge funds’ portfolios at the end of the first quarter of 2020. M shareholders have witnessed a decrease in hedge fund interest lately. There were 32 hedge funds in our database with M holdings at the end of the previous quarter. Our calculations also showed that M 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.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s go over the recent hedge fund action surrounding Macy’s, Inc. (NYSE:M).

How have hedgies been trading Macy’s, Inc. (NYSE:M)?

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 30 hedge funds with a bullish position in M a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

More specifically, Yacktman Asset Management was the largest shareholder of Macy’s, Inc. (NYSE:M), with a stake worth $223.2 million reported as of the end of September. Trailing Yacktman Asset Management was Contrarius Investment Management, which amassed a stake valued at $51.8 million. Two Sigma Advisors, Renaissance Technologies, and AQR Capital 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 Contrarius Investment Management allocated the biggest weight to Macy’s, Inc. (NYSE:M), around 6.64% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, earmarking 3.7 percent of its 13F equity portfolio to M.

Seeing as Macy’s, Inc. (NYSE:M) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that decided to sell off their positions entirely in the first quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the biggest stake of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $29.9 million in stock. James Parsons’s fund, Junto Capital Management, also cut its stock, about $25.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Macy’s, Inc. (NYSE:M) but similarly valued. We will take a look at Aaron’s, Inc. (NYSE:AAN), First Midwest Bancorp Inc (NASDAQ:FMBI), Workiva Inc (NYSE:WK), and Central Garden & Pet Co (NASDAQ:CENT). This group of stocks’ market caps match M’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $356 million in M’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Macy’s, Inc. (NYSE:M) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on M as the stock returned 40.1% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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