Did Hedge Funds Make The Right Call On W.W. Grainger, Inc. (GWW)?

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 W.W. Grainger, Inc. (NYSE:GWW) and determine whether hedge funds skillfully traded this stock.

W.W. Grainger, Inc. (NYSE:GWW) investors should be aware of a decrease in hedge fund sentiment lately. Our calculations also showed that GWW 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.

In the financial world there are several metrics investors put to use to grade stocks. Two of the most useful metrics are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outpace the market by a healthy amount (see the details here).

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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. With all of this in mind we’re going to take a look at the latest hedge fund action regarding W.W. Grainger, Inc. (NYSE:GWW).

How have hedgies been trading W.W. Grainger, Inc. (NYSE:GWW)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GWW over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

The largest stake in W.W. Grainger, Inc. (NYSE:GWW) was held by Citadel Investment Group, which reported holding $131.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $80.4 million position. Other investors bullish on the company included Two Sigma Advisors, Interval Partners, and AQR Capital Management. In terms of the portfolio weights assigned to each position Interval Partners allocated the biggest weight to W.W. Grainger, Inc. (NYSE:GWW), around 1.83% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, setting aside 0.75 percent of its 13F equity portfolio to GWW.

Seeing as W.W. Grainger, Inc. (NYSE:GWW) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there were a few hedge funds that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Noam Gottesman’s GLG Partners dumped the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $14 million in stock, and Kamyar Khajavi’s MIK Capital was right behind this move, as the fund dropped about $6.1 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as W.W. Grainger, Inc. (NYSE:GWW) but similarly valued. These stocks are CDW Corporation (NASDAQ:CDW), Deutsche Bank Aktiengesellschaft (NYSE:DB), BioNTech SE (NASDAQ:BNTX), and Maxim Integrated Products Inc. (NASDAQ:MXIM). This group of stocks’ market values are similar to GWW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDW 36 947126 6
DB 12 916383 0
BNTX 6 37923 2
MXIM 30 213575 -2
Average 21 528752 1.5

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 $529 million. That figure was $346 million in GWW’s case. CDW Corporation (NASDAQ:CDW) is the most popular stock in this table. On the other hand BioNTech SE (NASDAQ:BNTX) is the least popular one with only 6 bullish hedge fund positions. W.W. Grainger, Inc. (NYSE:GWW) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on GWW as the stock returned 27.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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