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Hedge Funds Cashing Out Of VMware, Inc. (VMW)

In this article we will check out the progression of hedge fund sentiment towards VMware, Inc. (NYSE:VMW) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is VMware, Inc. (NYSE:VMW) worth your attention right now? Prominent investors are reducing their bets on the stock. The number of bullish hedge fund positions fell by 6 recently. Our calculations also showed that VMW 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 eyes of most market participants, hedge funds are perceived as worthless, old investment vehicles of the past. While there are greater than 8000 funds in operation today, We look at the upper echelon of this group, about 850 funds. These money managers handle the lion’s share of all hedge funds’ total capital, and by tailing their unrivaled stock picks, Insider Monkey has unsheathed many investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Sander Gerber Hudson Bay Capital Management

Sander Gerber of Hudson Bay Capital Management

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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. With all of this in mind we’re going to take a glance at the fresh hedge fund action encompassing VMware, Inc. (NYSE:VMW).

What have hedge funds been doing with VMware, Inc. (NYSE:VMW)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in VMW a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in VMware, Inc. (NYSE:VMW) was held by Renaissance Technologies, which reported holding $93.4 million worth of stock at the end of September. It was followed by GMT Capital with a $67.8 million position. Other investors bullish on the company included Citadel Investment Group, AQR Capital Management, and Alyeska Investment Group. In terms of the portfolio weights assigned to each position GMT Capital allocated the biggest weight to VMware, Inc. (NYSE:VMW), around 3.8% of its 13F portfolio. Mondrian Capital is also relatively very bullish on the stock, earmarking 1.83 percent of its 13F equity portfolio to VMW.

Seeing as VMware, Inc. (NYSE:VMW) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few fund managers that elected to cut their entire stakes heading into Q4. It’s worth mentioning that Brandon Haley’s Holocene Advisors dumped the biggest stake of all the hedgies watched by Insider Monkey, comprising close to $53 million in stock, and Vikas Lunia’s Lunia Capital was right behind this move, as the fund dumped about $9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as VMware, Inc. (NYSE:VMW) but similarly valued. We will take a look at Chubb Limited (NYSE:CB), The Bank of Nova Scotia (NYSE:BNS), Uber Technologies, Inc. (NYSE:UBER), and Takeda Pharmaceutical Company Limited (NYSE:TAK). All of these stocks’ market caps resemble VMW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CB 33 691382 9
BNS 12 240173 -4
UBER 97 5084706 3
TAK 22 734533 -6
Average 41 1687699 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1688 million. That figure was $421 million in VMW’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 12 bullish hedge fund positions. VMware, Inc. (NYSE:VMW) is not the least popular stock in this group but hedge fund interest is still below 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on VMW as the stock returned 29% during 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.

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