We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Macy’s, Inc. (NYSE:M) in this article.
Hedge fund interest in Macy’s, Inc. (NYSE:M) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Etsy Inc (NASDAQ:ETSY), Healthequity Inc (NASDAQ:HQY), and ServiceMaster Global Holdings Inc (NYSE:SERV) to gather more data points. Our calculations also showed that M isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Yacktman of Yacktman Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s analyze the key hedge fund action surrounding Macy’s, Inc. (NYSE:M).
How are hedge funds trading Macy’s, Inc. (NYSE:M)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in M over the last 18 quarters. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Yacktman Asset Management was the largest shareholder of Macy’s, Inc. (NYSE:M), with a stake worth $415.6 million reported as of the end of September. Trailing Yacktman Asset Management was Contrarius Investment Management, which amassed a stake valued at $174.1 million. AQR Capital Management, Arrowstreet Capital, and Citadel Investment Group 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 Contrarius Investment Management allocated the biggest weight to Macy’s, Inc. (NYSE:M), around 9.13% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, setting aside 5.25 percent of its 13F equity portfolio to M.
Seeing as Macy’s, Inc. (NYSE:M) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds that decided to sell off their positions entirely last quarter. Intriguingly, Israel Englander’s Millennium Management sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $36.7 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund said goodbye to about $5.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks similar to Macy’s, Inc. (NYSE:M). These stocks are Etsy Inc (NASDAQ:ETSY), Healthequity Inc (NASDAQ:HQY), ServiceMaster Global Holdings Inc (NYSE:SERV), and Trex Company, Inc. (NYSE:TREX). All of these stocks’ market caps are closest to M’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ETSY | 46 | 814287 | -3 |
| HQY | 23 | 163737 | 1 |
| SERV | 42 | 1197647 | 13 |
| TREX | 20 | 110539 | -1 |
| Average | 32.75 | 571553 | 2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $572 million. That figure was $861 million in M’s case. Etsy Inc (NASDAQ:ETSY) is the most popular stock in this table. On the other hand Trex Company, Inc. (NYSE:TREX) is the least popular one with only 20 bullish hedge fund positions. Macy’s, Inc. (NYSE:M) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately M wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); M investors were disappointed as the stock returned -59.5% 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
