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 CDW Corporation (NASDAQ:CDW).
CDW Corporation (NASDAQ:CDW) has experienced an increase in hedge fund sentiment recently. CDW Corporation (NASDAQ:CDW) was in 40 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 36. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CDW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a gander at the key hedge fund action regarding CDW Corporation (NASDAQ:CDW).
How are hedge funds trading CDW Corporation (NASDAQ:CDW)?
Heading into the third quarter of 2020, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CDW over the last 20 quarters. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in CDW Corporation (NASDAQ:CDW), which was worth $685.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $88.9 million worth of shares. Gobi Capital, LFL Advisers, and Renaissance Technologies 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 LFL Advisers allocated the biggest weight to CDW Corporation (NASDAQ:CDW), around 24.92% of its 13F portfolio. Makaira Partners is also relatively very bullish on the stock, setting aside 10.42 percent of its 13F equity portfolio to CDW.
Consequently, key money managers were leading the bulls’ herd. Samlyn Capital, managed by Robert Pohly, assembled the largest position in CDW Corporation (NASDAQ:CDW). Samlyn Capital had $45.1 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $7.6 million position during the quarter. The following funds were also among the new CDW investors: Anthony S. Daffer’s Provenire Capital, Greg Eisner’s Engineers Gate Manager, and Greg Poole’s Echo Street Capital Management.
Let’s check out hedge fund activity in other stocks similar to CDW Corporation (NASDAQ:CDW). These stocks are TransUnion (NYSE:TRU), Northern Trust Corporation (NASDAQ:NTRS), Restaurant Brands International Inc (NYSE:QSR), Yandex NV (NASDAQ:YNDX), Peloton Interactive, Inc. (NASDAQ:PTON), CGI Inc. (NYSE:GIB), and Fox Corporation (NASDAQ:FOX). This group of stocks’ market caps resemble CDW’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 37 hedge funds with bullish positions and the average amount invested in these stocks was $1327 million. That figure was $1180 million in CDW’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand CGI Inc. (NYSE:GIB) is the least popular one with only 19 bullish hedge fund positions. CDW Corporation (NASDAQ:CDW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CDW is 72.9. 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 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 23% in 2020 through October 30th and beat the market again by 20.1 percentage points. Unfortunately CDW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on CDW were disappointed as the stock returned 5.9% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.