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Hedge Funds Aren’t Crazy About Arrow Electronics, Inc. (ARW) Anymore

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. In this article we look at what those investors think of Arrow Electronics, Inc. (NYSE:ARW).

Arrow Electronics, Inc. (NYSE:ARW) has seen a decrease in hedge fund interest lately. Our calculations also showed that ARW 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the new hedge fund action regarding Arrow Electronics, Inc. (NYSE:ARW).

What does smart money think about Arrow Electronics, Inc. (NYSE:ARW)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -32% from the fourth quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in ARW a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Arrow Electronics, Inc. (NYSE:ARW), which was worth $177 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $93 million worth of shares. Citadel Investment Group, Pzena Investment Management, and D E Shaw 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 Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.29% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, dishing out 0.63 percent of its 13F equity portfolio to ARW.

Because Arrow Electronics, Inc. (NYSE:ARW) has faced bearish sentiment from hedge fund managers, logic holds that there were a few funds who were dropping their full holdings heading into Q4. Interestingly, Thomas E. Claugus’s GMT Capital cut the largest stake of all the hedgies monitored by Insider Monkey, totaling about $17.9 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $5 million worth. These moves are important to note, as aggregate hedge fund interest fell by 11 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Arrow Electronics, Inc. (NYSE:ARW). We will take a look at Invesco Ltd. (NYSE:IVZ), ICU Medical, Inc. (NASDAQ:ICUI), United Therapeutics Corporation (NASDAQ:UTHR), and Diamondback Energy Inc (NASDAQ:FANG). This group of stocks’ market caps are closest to ARW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IVZ 26 114502 2
ICUI 25 376778 8
UTHR 31 1290986 -5
FANG 31 240887 -13
Average 28.25 505788 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $506 million. That figure was $359 million in ARW’s case. United Therapeutics Corporation (NASDAQ:UTHR) is the most popular stock in this table. On the other hand ICU Medical, Inc. (NASDAQ:ICUI) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Arrow Electronics, Inc. (NYSE:ARW) is even less popular than ICUI. Hedge funds clearly dropped the ball on ARW 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on ARW as the stock returned 38.3% so far 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.