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Were Hedge Funds Right About Dumping Expeditors International of Washington (EXPD)?

Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Expeditors International of Washington, Inc. (NASDAQ:EXPD) and see how the stock is affected by the recent hedge fund activity.

Expeditors International of Washington, Inc. (NASDAQ:EXPD) was in 25 hedge funds’ portfolios at the end of June. EXPD has experienced a decrease in hedge fund sentiment in recent months. There were 30 hedge funds in our database with EXPD holdings at the end of the previous quarter. Our calculations also showed that EXPD isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

EXPD_oct2019

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the key hedge fund action regarding Expeditors International of Washington, Inc. (NASDAQ:EXPD).

How have hedgies been trading Expeditors International of Washington, Inc. (NASDAQ:EXPD)?

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. On the other hand, there were a total of 28 hedge funds with a bullish position in EXPD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

David Harding

More specifically, Select Equity Group was the largest shareholder of Expeditors International of Washington, Inc. (NASDAQ:EXPD), with a stake worth $126.7 million reported as of the end of March. Trailing Select Equity Group was AQR Capital Management, which amassed a stake valued at $46.3 million. Tensile Capital, D E Shaw, and Winton Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Judging by the fact that Expeditors International of Washington, Inc. (NASDAQ:EXPD) has faced falling interest from the entirety of the hedge funds we track, logic holds that there is a sect of funds who sold off their positions entirely in the second quarter. Interestingly, Jeffrey Talpins’s Element Capital Management cut the largest position of the 750 funds monitored by Insider Monkey, worth close to $5.2 million in stock, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital was right behind this move, as the fund sold off about $2.6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 5 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Expeditors International of Washington, Inc. (NASDAQ:EXPD). These stocks are Steris Plc (NYSE:STE), Teck Resources Ltd (NYSE:TECK), Varian Medical Systems, Inc. (NYSE:VAR), and CenturyLink, Inc. (NYSE:CTL). This group of stocks’ market valuations match EXPD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STE 22 287399 1
TECK 23 915558 -4
VAR 25 621271 -7
CTL 27 1040787 -5
Average 24.25 716254 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $716 million. That figure was $398 million in EXPD’s case. CenturyLink, Inc. (NYSE:CTL) is the most popular stock in this table. On the other hand Steris Plc (NYSE:STE) is the least popular one with only 22 bullish hedge fund positions. Expeditors International of Washington, Inc. (NASDAQ:EXPD) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately EXPD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EXPD were disappointed as the stock returned -2.1% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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