We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Pearson PLC (NYSE:PSO) in this article.
Pearson PLC (NYSE:PSO) was in 5 hedge funds’ portfolios at the end of December. PSO investors should pay attention to an increase in support from the world’s most elite money managers of late. There were 3 hedge funds in our database with PSO holdings at the end of the previous quarter. Our calculations also showed that PSO isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you’d ask most stock holders, hedge funds are seen as slow, old investment tools of years past. While there are more than 8000 funds in operation at present, We look at the moguls of this club, about 850 funds. These money managers handle bulk of the smart money’s total capital, and by following their best equity investments, Insider Monkey has identified numerous investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the latest hedge fund action regarding Pearson PLC (NYSE:PSO).
How are hedge funds trading Pearson PLC (NYSE:PSO)?
At Q4’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PSO over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Pearson PLC (NYSE:PSO), which was worth $2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1.4 million worth of shares. ExodusPoint Capital, Citadel Investment Group, and Two Sigma Advisors 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 ExodusPoint Capital allocated the biggest weight to Pearson PLC (NYSE:PSO), around 0.01% of its 13F portfolio. Millennium Management is also relatively very bullish on the stock, setting aside 0.0018 percent of its 13F equity portfolio to PSO.
As one would reasonably expect, some big names have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, created the biggest position in Pearson PLC (NYSE:PSO). ExodusPoint Capital had $0.5 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $0.2 million position during the quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Pearson PLC (NYSE:PSO) but similarly valued. We will take a look at Ciena Corporation (NASDAQ:CIEN), ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), SYNNEX Corporation (NYSE:SNX), and Enel Chile S.A. (NYSE:ENIC). This group of stocks’ market valuations are similar to PSO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CIEN | 35 | 521742 | 4 |
| ACAD | 34 | 2320902 | 7 |
| SNX | 22 | 389913 | -2 |
| ENIC | 6 | 39114 | -2 |
| Average | 24.25 | 817918 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $818 million. That figure was $4 million in PSO’s case. Ciena Corporation (NASDAQ:CIEN) is the most popular stock in this table. On the other hand Enel Chile S.A. (NYSE:ENIC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Pearson PLC (NYSE:PSO) is even less popular than ENIC. Hedge funds dodged a bullet by taking a bearish stance towards PSO. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately PSO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PSO investors were disappointed as the stock returned -27.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
