Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
FedEx Corporation (NYSE:FDX) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 41 hedge funds’ portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Las Vegas Sands Corp. (NYSE:LVS), ING Groep N.V. (NYSE:ING), and America Movil SAB de CV (NYSE:AMX) to gather more data points.
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.
Let’s check out the fresh hedge fund action encompassing FedEx Corporation (NYSE:FDX).
What have hedge funds been doing with FedEx Corporation (NYSE:FDX)?
At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FDX over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in FedEx Corporation (NYSE:FDX) was held by Bill & Melinda Gates Foundation Trust, which reported holding $548.8 million worth of stock at the end of March. It was followed by Southeastern Asset Management with a $529.1 million position. Other investors bullish on the company included Greenhaven Associates, Lakewood Capital Management, and D E Shaw.
Judging by the fact that FedEx Corporation (NYSE:FDX) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers who sold off their positions entirely heading into Q3. At the top of the heap, Richard Chilton’s Chilton Investment Company cut the largest stake of the 700 funds followed by Insider Monkey, valued at about $58.5 million in stock, and Larry Robbins’s Glenview Capital was right behind this move, as the fund cut about $58.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to FedEx Corporation (NYSE:FDX). We will take a look at Las Vegas Sands Corp. (NYSE:LVS), ING Groep N.V. (NYSE:ING), America Movil SAB de CV (NYSE:AMX), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). All of these stocks’ market caps are similar to FDX’s market cap.
|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 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $1180 million. That figure was $2267 million in FDX’s case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand ING Groep N.V. (NYSE:ING) is the least popular one with only 10 bullish hedge fund positions. FedEx Corporation (NYSE:FDX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 FDX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FDX were disappointed as the stock returned -12.9% during the same 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.