Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Cisco Systems, Inc. (NASDAQ:CSCO).
Cisco Systems, Inc. (NASDAQ:CSCO) was in 45 hedge funds’ portfolios at the end of March. CSCO investors should be aware of a decrease in hedge fund sentiment in recent months. There were 55 hedge funds in our database with CSCO holdings at the end of the previous quarter. Our calculations also showed that csco 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’ 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.
We’re going to take a gander at the latest hedge fund action encompassing Cisco Systems, Inc. (NASDAQ:CSCO).
How have hedgies been trading Cisco Systems, Inc. (NASDAQ:CSCO)?
At the end of the first quarter, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. By comparison, 54 hedge funds held shares or bullish call options in CSCO a year ago. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of Cisco Systems, Inc. (NASDAQ:CSCO), with a stake worth $1184.6 million reported as of the end of March. Trailing Fisher Asset Management was AQR Capital Management, which amassed a stake valued at $798.7 million. Adage Capital Management, Yacktman Asset Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Cisco Systems, Inc. (NASDAQ:CSCO) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of money managers that slashed their entire stakes heading into Q3. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $19.3 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund dumped about $12.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 10 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Cisco Systems, Inc. (NASDAQ:CSCO) but similarly valued. These stocks are UnitedHealth Group Inc. (NYSE:UNH), Pfizer Inc. (NYSE:PFE), Chevron Corporation (NYSE:CVX), and AT&T Inc. (NYSE:T). This group of stocks’ market valuations match CSCO’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 54.75 hedge funds with bullish positions and the average amount invested in these stocks was $3691 million. That figure was $3154 million in CSCO’s case. UnitedHealth Group Inc. (NYSE:UNH) is the most popular stock in this table. On the other hand AT&T Inc. (NYSE:T) is the least popular one with only 41 bullish hedge fund positions. Cisco Systems, Inc. (NASDAQ:CSCO) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on CSCO, though not to the same extent, as the stock returned -0.1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.