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Hedge Funds Are Betting On Arrow Electronics, Inc. (ARW)

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 Arrow Electronics, Inc. (NYSE:ARW) and determine whether hedge funds skillfully traded this stock.

Arrow Electronics, Inc. (NYSE:ARW) investors should pay attention to an increase in support from the world’s most elite money managers recently. Arrow Electronics, Inc. (NYSE:ARW) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. Our calculations also showed that ARW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Today there are plenty of metrics stock traders have at their disposal to appraise stocks. A pair of the most under-the-radar metrics are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outclass the market by a solid amount (see the details here).

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a gander at the fresh hedge fund action encompassing Arrow Electronics, Inc. (NYSE:ARW).

Hedge fund activity in Arrow Electronics, Inc. (NYSE:ARW)

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in ARW a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Arrow Electronics, Inc. (NYSE:ARW). AQR Capital Management has a $193.2 million position in the stock, comprising 0.3% of its 13F portfolio. The second largest stake is held by Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, which holds a $121.5 million position; 2.4% of its 13F portfolio is allocated to the company. Some other peers that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Rockefeller and KarláKroeker’s Woodline Partners and Bernard Horn’s Polaris Capital Management. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.4% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, earmarking 1.92 percent of its 13F equity portfolio to ARW.

As aggregate interest increased, some big names were leading the bulls’ herd. Renaissance Technologies, created the most outsized position in Arrow Electronics, Inc. (NYSE:ARW). Renaissance Technologies had $7.3 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Parvinder Thiara’s Athanor Capital, Paul Tudor Jones’s Tudor Investment Corp, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Arrow Electronics, Inc. (NYSE:ARW) but similarly valued. These stocks are Quanta Services Inc (NYSE:PWR), BWX Technologies Inc (NYSE:BWXT), Reinsurance Group of America Inc (NYSE:RGA), Douglas Emmett, Inc. (NYSE:DEI), Dunkin Brands Group Inc (NASDAQ:DNKN), First American Financial Corp (NYSE:FAF), and Jones Lang LaSalle Inc (NYSE:JLL). This group of stocks’ market caps resemble ARW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PWR 31 624315 3
BWXT 27 141453 3
RGA 33 240555 3
DEI 27 699337 5
DNKN 35 416764 1
FAF 44 685903 4
JLL 23 676141 -3
Average 31.4 497781 2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.4 hedge funds with bullish positions and the average amount invested in these stocks was $498 million. That figure was $532 million in ARW’s case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Jones Lang LaSalle Inc (NYSE:JLL) is the least popular one with only 23 bullish hedge fund positions. Arrow Electronics, Inc. (NYSE:ARW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ARW is 49.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on ARW as the stock returned 16.5% since the end of June (through September 14th) and outperformed the market by an even larger margin.

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