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Were Hedge Funds Right About Buying Xerox Holdings Corporation (XRX)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Xerox Holdings Corporation (NYSE:XRX) and determine whether the smart money was really smart about this stock.

Xerox Holdings Corporation (NYSE:XRX) was in 41 hedge funds’ portfolios at the end of March. XRX shareholders have witnessed an increase in hedge fund interest of late. There were 39 hedge funds in our database with XRX holdings at the end of the previous quarter. Our calculations also showed that XRX isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Most Popular Stocks Among Hedge Funds

Carl Icahn of Icahn Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the key hedge fund action encompassing Xerox Holdings Corporation (NYSE:XRX).

What does smart money think about Xerox Holdings Corporation (NYSE:XRX)?

Heading into the second quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XRX 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.

Of the funds tracked by Insider Monkey, Carl Icahn’s Icahn Capital LP has the number one position in Xerox Holdings Corporation (NYSE:XRX), worth close to $444.3 million, corresponding to 2.5% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, led by Cliff Asness, holding a $162.7 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other peers that hold long positions consist of Benjamin Pass’s TOMS Capital, Carl Tiedemann and Michael Tiedemann’s TIG Advisors and David Costen Haley’s HBK Investments. In terms of the portfolio weights assigned to each position Mason Capital Management allocated the biggest weight to Xerox Holdings Corporation (NYSE:XRX), around 6.78% of its 13F portfolio. Icahn Capital LP is also relatively very bullish on the stock, earmarking 2.47 percent of its 13F equity portfolio to XRX.

Now, key money managers have been driving this bullishness. Mason Capital Management, managed by Kenneth Mario Garschina, established the largest position in Xerox Holdings Corporation (NYSE:XRX). Mason Capital Management had $21.3 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $13.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Joseph Samuels’s Islet Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Robert Emil Zoellner’s Alpine Associates.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Xerox Holdings Corporation (NYSE:XRX) but similarly valued. These stocks are Autoliv Inc. (NYSE:ALV), Black Hills Corporation (NYSE:BKH), Virtu Financial Inc (NASDAQ:VIRT), and Herbalife Nutrition Ltd. (NYSE:HLF). All of these stocks’ market caps match XRX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALV 15 366576 -6
BKH 18 170302 -6
VIRT 17 72830 2
HLF 31 2056361 -1
Average 20.25 666517 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $667 million. That figure was $873 million in XRX’s case. Herbalife Nutrition Ltd. (NYSE:HLF) is the most popular stock in this table. On the other hand Autoliv Inc. (NYSE:ALV) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Xerox Holdings Corporation (NYSE:XRX) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately XRX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on XRX were disappointed as the stock returned -17.9% during the second quarter 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 most of these stocks already outperformed the market in 2020.

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