Was The Smart Money Right About The Sherwin-Williams Company (SHW)?

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was The Sherwin-Williams Company (NYSE:SHW).

Is The Sherwin-Williams Company (NYSE:SHW) the right investment to pursue these days? Prominent investors were becoming less confident. The number of long hedge fund bets retreated by 2 recently. The Sherwin-Williams Company (NYSE:SHW) was in 49 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 57. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (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, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to view the recent hedge fund action surrounding The Sherwin-Williams Company (NYSE:SHW).

Do Hedge Funds Think SHW Is A Good Stock To Buy Now?

At the end of June, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 53 hedge funds with a bullish position in SHW a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Chilton Investment Company held the most valuable stake in The Sherwin-Williams Company (NYSE:SHW), which was worth $319.8 million at the end of the second quarter. On the second spot was Farallon Capital which amassed $284.8 million worth of shares. Diamond Hill Capital, Alkeon Capital Management, 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 Chilton Investment Company allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 8.04% of its 13F portfolio. Bluegrass Capital Partners is also relatively very bullish on the stock, earmarking 6.04 percent of its 13F equity portfolio to SHW.

Due to the fact that The Sherwin-Williams Company (NYSE:SHW) has faced declining sentiment from hedge fund managers, it’s safe to say that there were a few fund managers that slashed their positions entirely heading into Q3. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors cut the largest position of the 750 funds monitored by Insider Monkey, totaling about $144.5 million in stock, Renaissance Technologies was right behind this move, as the fund cut about $97.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as The Sherwin-Williams Company (NYSE:SHW) but similarly valued. We will take a look at Coupang, Inc. (NYSE:CPNG), Equinix Inc (REIT) (NASDAQ:EQIX), Snowflake Inc (NYSE:SNOW), Marsh & McLennan Companies, Inc. (NYSE:MMC), Chubb Limited (NYSE:CB), Baidu, Inc. (NASDAQ:BIDU), and Westpac Banking Corporation (NYSE:WBK). This group of stocks’ market valuations are similar to SHW’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $5658 million. That figure was $2029 million in SHW’s case. Snowflake Inc (NYSE:SNOW) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. The Sherwin-Williams Company (NYSE:SHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHW is 62.9. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Hedge funds were also right about betting on SHW as the stock returned 17.3% since the end of Q2 (through 11/5) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.