Hedge Funds Never Been Less Bullish On VMware, Inc. (VMW)

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not VMware, Inc. (NYSE:VMW) makes for a good investment right now.

VMware, Inc. (NYSE:VMW) was in 25 hedge funds’ portfolios at the end of March. The all time high for this statistic is 43. VMW has experienced a decrease in enthusiasm from smart money lately. There were 35 hedge funds in our database with VMW holdings at the end of December. Our calculations also showed that VMW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Curtis Schenker of Scoggin

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, economists warn of inflation flare up. So, we are checking out this backdoor gold play that has hit peak gains of 718% in a little over a year. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s check out the key hedge fund action regarding VMware, Inc. (NYSE:VMW).

Do Hedge Funds Think VMW Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the fourth quarter of 2020. By comparison, 27 hedge funds held shares or bullish call options in VMW a year ago. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, Two Sigma Advisors was the largest shareholder of VMware, Inc. (NYSE:VMW), with a stake worth $205.2 million reported as of the end of March. Trailing Two Sigma Advisors was Antipodes Partners, which amassed a stake valued at $103.7 million. Citadel Investment Group, Citadel Investment Group, and Renaissance Technologies 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 Jet Capital Investors allocated the biggest weight to VMware, Inc. (NYSE:VMW), around 5.81% of its 13F portfolio. Antipodes Partners is also relatively very bullish on the stock, designating 4.2 percent of its 13F equity portfolio to VMW.

Since VMware, Inc. (NYSE:VMW) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who sold off their positions entirely heading into Q2. At the top of the heap, Greg Eisner’s Engineers Gate Manager dropped the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $8.8 million in stock. Ray Dalio’s fund, Bridgewater Associates, also sold off its stock, about $6.8 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 10 funds heading into Q2.

Let’s now take a look at hedge fund activity in other stocks similar to VMware, Inc. (NYSE:VMW). These stocks are Intercontinental Exchange Inc (NYSE:ICE), Air Products & Chemicals, Inc. (NYSE:APD), Marsh & McLennan Companies, Inc. (NYSE:MMC), ABB Ltd (NYSE:ABB), Ecolab Inc. (NYSE:ECL), Dominion Energy Inc. (NYSE:D), and Autodesk, Inc. (NASDAQ:ADSK). This group of stocks’ market valuations match VMW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICE 58 3328612 5
APD 32 586835 -18
MMC 37 2143915 -6
ABB 11 563747 3
ECL 42 2403354 -3
D 39 1295937 -8
ADSK 66 3056525 0
Average 40.7 1911275 -3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.7 hedge funds with bullish positions and the average amount invested in these stocks was $1911 million. That figure was $549 million in VMW’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 11 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 overall hedge fund sentiment score for VMW is 25.2. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through July 9th and surpassed the market again by 6.7 percentage points. Unfortunately VMW wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); VMW investors were disappointed as the stock returned 6% since the end of March (through 7/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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