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Hedge Funds Have Never Been This Bullish On The Procter & Gamble Company (PG)

Is The Procter & Gamble Company (NYSE:PG) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

The Procter & Gamble Company (NYSE:PG) was in 79 hedge funds’ portfolios at the end of the fourth quarter of 2019. PG has seen an increase in enthusiasm from smart money recently. There were 74 hedge funds in our database with PG positions at the end of the previous quarter. Our calculations also showed that PG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ 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 41 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.

TRIAN PARTNERS

Nelson Peltz of Trian Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let’s take a gander at the new hedge fund action regarding The Procter & Gamble Company (NYSE:PG).

What does smart money think about The Procter & Gamble Company (NYSE:PG)?

Heading into the first quarter of 2020, a total of 79 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 7% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PG over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

More specifically, Trian Partners was the largest shareholder of The Procter & Gamble Company (NYSE:PG), with a stake worth $4016.1 million reported as of the end of September. Trailing Trian Partners was Cedar Rock Capital, which amassed a stake valued at $1454.4 million. AQR Capital Management, Fisher Asset Management, and Yacktman Asset Management 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 Trian Partners allocated the biggest weight to The Procter & Gamble Company (NYSE:PG), around 42.34% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, earmarking 32.92 percent of its 13F equity portfolio to PG.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Ako Capital, managed by Nicolai Tangen, assembled the largest position in The Procter & Gamble Company (NYSE:PG). Ako Capital had $201 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $44.5 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Brian Scudieri’s Kehrs Ridge Capital, and Jack Woodruff’s Candlestick Capital Management.

Let’s check out hedge fund activity in other stocks similar to The Procter & Gamble Company (NYSE:PG). We will take a look at Mastercard Incorporated (NYSE:MA), Exxon Mobil Corporation (NYSE:XOM), AT&T Inc. (NYSE:T), and UnitedHealth Group Inc. (NYSE:UNH). This group of stocks’ market valuations are similar to PG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MA 125 14560784 0
XOM 63 2028251 8
T 50 1406918 -1
UNH 91 7896286 3
Average 82.25 6473060 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 82.25 hedge funds with bullish positions and the average amount invested in these stocks was $6473 million. That figure was $10726 million in PG’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 50 bullish hedge fund positions. The Procter & Gamble Company (NYSE:PG) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. A record number of hedge funds were also right about betting on PG as the stock returned -6.5% during the same time period and outperformed the market by an even larger margin.

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

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