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 McCormick & Company, Incorporated (NYSE:MKC).
Is MKC a good stock to buy? Investors who are in the know were in a bullish mood. The number of long hedge fund positions inched up by 5 in recent months. McCormick & Company, Incorporated (NYSE:MKC) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MKC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by 66 percentage points since March 2017 (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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s view the latest hedge fund action encompassing McCormick & Company, Incorporated (NYSE:MKC).
Do Hedge Funds Think MKC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MKC over the last 21 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of McCormick & Company, Incorporated (NYSE:MKC), with a stake worth $75 million reported as of the end of September. Trailing Two Sigma Advisors was AQR Capital Management, which amassed a stake valued at $64.4 million. Marshall Wace LLP, Adage Capital Management, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Sciencast Management allocated the biggest weight to McCormick & Company, Incorporated (NYSE:MKC), around 0.67% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, earmarking 0.55 percent of its 13F equity portfolio to MKC.
As aggregate interest increased, key hedge funds were breaking ground themselves. Bridgewater Associates, managed by Ray Dalio, initiated the biggest position in McCormick & Company, Incorporated (NYSE:MKC). Bridgewater Associates had $12.3 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $5.7 million position during the quarter. The following funds were also among the new MKC investors: Dmitry Balyasny’s Balyasny Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as McCormick & Company, Incorporated (NYSE:MKC) but similarly valued. These stocks are Archer Daniels Midland Company (NYSE:ADM), BeiGene, Ltd. (NASDAQ:BGNE), Liberty Broadband Corp (NASDAQ:LBRDA), Align Technology, Inc. (NASDAQ:ALGN), TransDigm Group Incorporated (NYSE:TDG), Fortive Corporation (NYSE:FTV), and Rockwell Automation Inc. (NYSE:ROK). All of these stocks’ market caps resemble MKC’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 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $2507 million. That figure was $316 million in MKC’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 13 bullish hedge fund positions. McCormick & Company, Incorporated (NYSE:MKC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MKC is 63.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market again by 16.4 percentage points. Unfortunately MKC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MKC were disappointed as the stock returned -3.5% since the end of September (through 12/18) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.