It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year (through May 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Avery Dennison Corporation (NYSE:AVY).
Is Avery Dennison Corporation (NYSE:AVY) a good investment today? Investors who are in the know are becoming less hopeful. The number of long hedge fund positions were trimmed by 5 recently. Our calculations also showed that avy isn’t among the 30 most popular stocks among hedge funds. AVY was in 23 hedge funds’ portfolios at the end of March. There were 28 hedge funds in our database with AVY holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s check out the key hedge fund action regarding Avery Dennison Corporation (NYSE:AVY).
What have hedge funds been doing with Avery Dennison Corporation (NYSE:AVY)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVY over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of Avery Dennison Corporation (NYSE:AVY), with a stake worth $104.3 million reported as of the end of March. Trailing Adage Capital Management was Citadel Investment Group, which amassed a stake valued at $82.5 million. AQR Capital Management, Point72 Asset Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Avery Dennison Corporation (NYSE:AVY) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that decided to sell off their full holdings in the third quarter. Interestingly, Jim Simons’s Renaissance Technologies cut the biggest investment of the 700 funds tracked by Insider Monkey, comprising close to $14.6 million in stock, and Anand More’s SAYA Management was right behind this move, as the fund said goodbye to about $12.7 million worth. These transactions are interesting, as total hedge fund interest fell by 5 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Avery Dennison Corporation (NYSE:AVY). We will take a look at FactSet Research Systems Inc. (NYSE:FDS), Tapestry, Inc. (NYSE:TPR), Packaging Corporation Of America (NYSE:PKG), and PG&E Corporation (NYSE:PCG). This group of stocks’ market valuations are similar to AVY’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $1406 million. That figure was $314 million in AVY’s case. PG&E Corporation (NYSE:PCG) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 18 bullish hedge fund positions. Avery Dennison Corporation (NYSE:AVY) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. Unfortunately AVY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AVY investors were disappointed as the stock returned -8.3% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.