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Walmart Inc. (WMT): Were Hedge Funds Right About This Stock?

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. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Walmart Inc. (NYSE:WMT) based on those filings.

Walmart Inc. (NYSE:WMT) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that WMT 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).

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 was able to identify in advance a select group of hedge fund holdings that 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.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

With all of this in mind let’s analyze the recent hedge fund action surrounding Walmart Inc. (NYSE:WMT).

Hedge fund activity in Walmart Inc. (NYSE:WMT)

At Q4’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WMT over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the biggest position in Walmart Inc. (NYSE:WMT). Bill & Melinda Gates Foundation Trust has a $1.3789 billion position in the stock, comprising 6.5% of its 13F portfolio. The second most bullish fund manager is Fisher Asset Management, managed by Ken Fisher, which holds a $1.3099 billion position; 1.3% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism contain Renaissance Technologies, Cliff Asness’s AQR Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Pittencrieff Partners – Gabalex Capital allocated the biggest weight to Walmart Inc. (NYSE:WMT), around 7.01% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, designating 6.46 percent of its 13F equity portfolio to WMT.

Judging by the fact that Walmart Inc. (NYSE:WMT) has faced a decline in interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds that elected to cut their positions entirely in the third quarter. It’s worth mentioning that James Parsons’s Junto Capital Management sold off the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $45.2 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund dumped about $35.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds in the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Walmart Inc. (NYSE:WMT) but similarly valued. These stocks are Bank of America Corporation (NYSE:BAC), Berkshire Hathaway Inc. (NYSE:BRK-B), The Procter & Gamble Company (NYSE:PG), and Mastercard Incorporated (NYSE:MA). This group of stocks’ market valuations match WMT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BAC 99 38412092 -4
BRK-B 113 23616180 2
PG 79 10725870 5
MA 125 14560784 0
Average 104 21828732 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 104 hedge funds with bullish positions and the average amount invested in these stocks was $21829 million. That figure was $5253 million in WMT’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Procter & Gamble Company (NYSE:PG) is the least popular one with only 79 bullish hedge fund positions. Compared to these stocks Walmart Inc. (NYSE:WMT) is even less popular than PG. Hedge funds clearly dropped the ball on WMT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on WMT as the stock returned 3.9% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
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.

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