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Here’s What Hedge Funds Think About US Foods Holding Corp. (USFD)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.

US Foods Holding Corp. (NYSE:USFD) has seen a decrease in activity from the world’s largest hedge funds lately. USFD was in 40 hedge funds’ portfolios at the end of the first quarter of 2019. There were 41 hedge funds in our database with USFD positions at the end of the previous quarter. Our calculations also showed that usfd isn’t among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 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.

Lee Ainslie MAVERICK CAPITAL

We’re going to review the latest hedge fund action encompassing US Foods Holding Corp. (NYSE:USFD).

How are hedge funds trading US Foods Holding Corp. (NYSE:USFD)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the fourth quarter of 2018. By comparison, 48 hedge funds held shares or bullish call options in USFD a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds USFD Positions

The largest stake in US Foods Holding Corp. (NYSE:USFD) was held by Eminence Capital, which reported holding $217.3 million worth of stock at the end of March. It was followed by Sachem Head Capital with a $150.1 million position. Other investors bullish on the company included Holocene Advisors, Maverick Capital, and Palestra Capital Management.

Due to the fact that US Foods Holding Corp. (NYSE:USFD) has faced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedgies that decided to sell off their entire stakes last quarter. Interestingly, Clint Carlson’s Carlson Capital sold off the biggest stake of all the hedgies followed by Insider Monkey, totaling about $40.7 million in stock. Gregory Thomas’s fund, Carbonado Capital, also said goodbye to its stock, about $16.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to US Foods Holding Corp. (NYSE:USFD). We will take a look at Nordson Corporation (NASDAQ:NDSN), L Brands Inc (NYSE:LB), Nice Ltd (NASDAQ:NICE), and SL Green Realty Corp (NYSE:SLG). This group of stocks’ market valuations resemble USFD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDSN 13 33215 -6
LB 32 709689 -3
NICE 17 236328 2
SLG 19 214863 -3
Average 20.25 298524 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $299 million. That figure was $1341 million in USFD’s case. L Brands Inc (NYSE:LB) is the most popular stock in this table. On the other hand Nordson Corporation (NASDAQ:NDSN) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks US Foods Holding Corp. (NYSE:USFD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on USFD as the stock returned 2.7% during the same period and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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