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Hedge Funds Dropped The Ball On CDW Corporation (CDW)

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about CDW Corporation (NASDAQ:CDW).

CDW Corporation (NASDAQ:CDW) shareholders have witnessed a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that CDW isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Thomas Bancroft - Makaira Partners

Let’s go over the recent hedge fund action encompassing CDW Corporation (NASDAQ:CDW).

What have hedge funds been doing with CDW Corporation (NASDAQ:CDW)?

At the end of the fourth quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in CDW 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 upping their holdings considerably (or already accumulated large positions).

CDW_mar2019

Of the funds tracked by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the most valuable position in CDW Corporation (NASDAQ:CDW), worth close to $333.2 million, comprising 2.5% of its total 13F portfolio. The second largest stake is held by AQR Capital Management, led by Cliff Asness, holding a $167.3 million position; 0.2% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions encompass Thomas Bancroft’s Makaira Partners, Israel Englander’s Millennium Management and Noam Gottesman’s GLG Partners.

Since CDW Corporation (NASDAQ:CDW) has faced falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few money managers who were dropping their positions entirely last quarter. At the top of the heap, George Zweig, Shane Haas and Ravi Chander’s Signition LP sold off the biggest stake of the 700 funds watched by Insider Monkey, worth close to $1.4 million in stock, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt. was right behind this move, as the fund cut about $0.5 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). These stocks are The Liberty SiriusXM Group (NASDAQ:LSXMK), Discovery, Inc. (NASDAQ:DISCK), Symantec Corporation (NASDAQ:SYMC), and The Liberty SiriusXM Group (NASDAQ:LSXMA). This group of stocks’ market caps match CDW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LSXMK 45 2694663 -3
DISCK 34 778837 0
SYMC 33 1274331 0
LSXMA 39 1272083 0
Average 37.75 1504979 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $1505 million. That figure was $861 million in CDW’s case. The Liberty SiriusXM Group (NASDAQ:LSXMK) is the most popular stock in this table. On the other hand Symantec Corporation (NASDAQ:SYMC) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks CDW Corporation (NASDAQ:CDW) is even less popular than SYMC. Hedge funds clearly dropped the ball on CDW. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Only a few hedge funds were also right about betting on CDW as the stock returned 21.1% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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