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Hedge Funds Dipping Their Toes Back Into The Estee Lauder Companies Inc (EL)

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 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded The Estee Lauder Companies Inc (NYSE:EL) and determine whether the smart money was really smart about this stock.

The Estee Lauder Companies Inc (NYSE:EL) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. The Estee Lauder Companies Inc (NYSE:EL) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. Our calculations also showed that EL 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.

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 56 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. 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. With all of this in mind we’re going to view the recent hedge fund action encompassing The Estee Lauder Companies Inc (NYSE:EL).

How are hedge funds trading The Estee Lauder Companies Inc (NYSE:EL)?

At Q2’s end, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EL over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Ako Capital held the most valuable stake in The Estee Lauder Companies Inc (NYSE:EL), which was worth $301.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $249.1 million worth of shares. Renaissance Technologies, Millennium Management, and Select Equity Group 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 Keywise Capital Management allocated the biggest weight to The Estee Lauder Companies Inc (NYSE:EL), around 5.63% of its 13F portfolio. Ako Capital is also relatively very bullish on the stock, earmarking 5.26 percent of its 13F equity portfolio to EL.

With a general bullishness amongst the heavyweights, some big names have jumped into The Estee Lauder Companies Inc (NYSE:EL) headfirst. Millennium Management, managed by Israel Englander, established the largest position in The Estee Lauder Companies Inc (NYSE:EL). Millennium Management had $78.8 million invested in the company at the end of the quarter. Robert Joseph Caruso’s Select Equity Group also initiated a $72.2 million position during the quarter. The other funds with brand new EL positions are Greg Poole’s Echo Street Capital Management, Fang Zheng’s Keywise Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks similar to The Estee Lauder Companies Inc (NYSE:EL). These stocks are The Blackstone Group Inc. (NYSE:BX), Stryker Corporation (NYSE:SYK), Intuitive Surgical, Inc. (NASDAQ:ISRG), Anthem Inc (NYSE:ANTM), Fiserv, Inc. (NASDAQ:FISV), Booking Holdings Inc. (NASDAQ:BKNG), and Zoetis Inc (NYSE:ZTS). This group of stocks’ market values are similar to EL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BX 47 1434341 -2
SYK 50 1257094 2
ISRG 43 1094503 -7
ANTM 69 4103137 -1
FISV 85 4642685 18
BKNG 96 6098595 6
ZTS 58 1985007 -2
Average 64 2945052 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 64 hedge funds with bullish positions and the average amount invested in these stocks was $2945 million. That figure was $1198 million in EL’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Intuitive Surgical, Inc. (NASDAQ:ISRG) is the least popular one with only 43 bullish hedge fund positions. The Estee Lauder Companies Inc (NYSE:EL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EL is 37.4. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. A small number of hedge funds were also right about betting on EL, though not to the same extent, as the stock returned 17.8% during the first two months of Q3 and outperformed the market.

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