We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Koninklijke Philips NV (NYSE:PHG).
Is PHG a good stock to buy now? Koninklijke Philips NV (NYSE:PHG) has seen an increase in hedge fund interest lately. Koninklijke Philips NV (NYSE:PHG) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 20. Our calculations also showed that PHG 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 scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 we’re going to go over the fresh hedge fund action encompassing Koninklijke Philips NV (NYSE:PHG).
Do Hedge Funds Think PHG Is A Good Stock To Buy Now?
At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in PHG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Koninklijke Philips NV (NYSE:PHG), with a stake worth $21.3 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $19 million. Citadel Investment Group, Beddow Capital Management, and Two Sigma Advisors 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 Beddow Capital Management allocated the biggest weight to Koninklijke Philips NV (NYSE:PHG), around 3.68% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, dishing out 0.45 percent of its 13F equity portfolio to PHG.
Now, key money managers were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, initiated the largest position in Koninklijke Philips NV (NYSE:PHG). D E Shaw had $2.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $1.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management and Ran Pang’s Quantamental Technologies.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Koninklijke Philips NV (NYSE:PHG) but similarly valued. We will take a look at Veeva Systems Inc (NYSE:VEEV), General Motors Company (NYSE:GM), Monster Beverage Corp (NASDAQ:MNST), HCA Healthcare Inc (NYSE:HCA), Roper Technologies Inc. (NYSE:ROP), Canadian Pacific Railway Limited (NYSE:CP), and Honda Motor Co Ltd (NYSE:HMC). This group of stocks’ market values resemble PHG’s market value.
|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 44.6 hedge funds with bullish positions and the average amount invested in these stocks was $1927 million. That figure was $56 million in PHG’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Koninklijke Philips NV (NYSE:PHG) is even less popular than HMC. Our overall hedge fund sentiment score for PHG is 24. 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. Hedge funds dodged a bullet by taking a bearish stance towards PHG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th but managed to beat the market again by 16.2 percentage points. Unfortunately PHG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PHG investors were disappointed as the stock returned 9.5% since the end of the third quarter (through 12/8) 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 most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.