We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Archer-Daniels-Midland Company (NYSE:ADM).
Archer-Daniels-Midland Company (NYSE:ADM) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that ADM isn’t among the 30 most popular stocks among hedge funds.
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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to analyze the recent hedge fund action encompassing Archer-Daniels-Midland Company (NYSE:ADM).
What have hedge funds been doing with Archer-Daniels-Midland Company (NYSE:ADM)?
At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in ADM a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Archer-Daniels-Midland Company (NYSE:ADM) was held by AQR Capital Management, which reported holding $102.9 million worth of stock at the end of March. It was followed by D E Shaw with a $68.9 million position. Other investors bullish on the company included Markel Gayner Asset Management, Two Sigma Advisors, and Soros Fund Management.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Archer-Daniels-Midland Company (NYSE:ADM). Balyasny Asset Management had $12.7 million invested in the company at the end of the quarter. John A. Levin’s Levin Capital Strategies also made a $6.7 million investment in the stock during the quarter. The other funds with brand new ADM positions are Anand Parekh’s Alyeska Investment Group, Minhua Zhang’s Weld Capital Management, and Clint Carlson’s Carlson Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Archer-Daniels-Midland Company (NYSE:ADM) but similarly valued. These stocks are M&T Bank Corporation (NYSE:MTB), Zoom Video Communications, Inc. (NASDAQ:ZM), FirstEnergy Corp. (NYSE:FE), and Total System Services, Inc. (NYSE:TSS). All of these stocks’ market caps are closest to ADM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MTB | 31 | 1264574 | -5 |
| ZM | 32 | 602810 | 32 |
| FE | 34 | 3498562 | -7 |
| TSS | 45 | 1236790 | 5 |
| Average | 35.5 | 1650684 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1651 million. That figure was $474 million in ADM’s case. Total System Services, Inc. (NYSE:TSS) is the most popular stock in this table. On the other hand M&T Bank Corporation (NYSE:MTB) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Archer-Daniels-Midland Company (NYSE:ADM) is even less popular than MTB. Hedge funds dodged a bullet by taking a bearish stance towards ADM. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ADM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ADM investors were disappointed as the stock returned 1.6% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019.
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.
