How Did The Sherwin-Williams Company (SHW) Perform In Comparison to Hedge Fund Favorites in 2019?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to The Sherwin-Williams Company (NYSE:SHW) changed recently.

Is The Sherwin-Williams Company (NYSE:SHW) going to take off soon? Prominent investors are becoming more confident. The number of long hedge fund positions advanced by 5 recently. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.


Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s check out the key hedge fund action regarding The Sherwin-Williams Company (NYSE:SHW).

How have hedgies been trading The Sherwin-Williams Company (NYSE:SHW)?

Heading into the fourth quarter of 2019, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SHW over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Farallon Capital has the number one position in The Sherwin-Williams Company (NYSE:SHW), worth close to $247.4 million, comprising 2.5% of its total 13F portfolio. Sitting at the No. 2 spot is Richard Chilton of Chilton Investment Company, with a $232.6 million position; 7.8% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism consist of Sculptor Capital, Phill Gross and Robert Atchinson’s Adage Capital Management and David Cohen and Harold Levy’s Iridian Asset Management. In terms of the portfolio weights assigned to each position BlueDrive Global Investors allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 7.8% of its 13F portfolio. Chilton Investment Company is also relatively very bullish on the stock, dishing out 7.76 percent of its 13F equity portfolio to SHW.

Consequently, specific money managers have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, initiated the largest position in The Sherwin-Williams Company (NYSE:SHW). Interval Partners had $27.5 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also made a $13.5 million investment in the stock during the quarter. The following funds were also among the new SHW investors: David E. Shaw’s D E Shaw, Javier Velazquez’s Albar Capital, and Joseph Samuels’s Islet Management.

Let’s now review hedge fund activity in other stocks similar to The Sherwin-Williams Company (NYSE:SHW). We will take a look at Marsh & McLennan Companies, Inc. (NYSE:MMC), Illinois Tool Works Inc. (NYSE:ITW), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Suncor Energy Inc. (NYSE:SU). This group of stocks’ market caps resemble SHW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MMC 26 579695 -3
ITW 28 335340 0
WBA 34 831418 -7
SU 37 1416790 5
Average 31.25 790811 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $791 million. That figure was $1588 million in SHW’s case. Suncor Energy Inc. (NYSE:SU) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks The Sherwin-Williams Company (NYSE:SHW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on SHW as the stock returned 49.6% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
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.