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

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Xerox Holdings Corporation (NYSE:XRX), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is Xerox Holdings Corporation (NYSE:XRX) ready to rally soon? Prominent investors were becoming less hopeful. The number of bullish hedge fund positions retreated by 5 in recent months. Xerox Holdings Corporation (NYSE:XRX) was in 25 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 44. Our calculations also showed that XRX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 30 hedge funds in our database with XRX holdings at the end of March.

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.

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At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium 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. With all of this in mind we’re going to take a glance at the latest hedge fund action surrounding Xerox Holdings Corporation (NYSE:XRX).

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

At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the first quarter of 2020. On the other hand, there were a total of 35 hedge funds with a bullish position in XRX 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.

Is XRX A Good Stock To Buy?

Among these funds, 0 held the most valuable stake in Xerox Holdings Corporation (NYSE:XRX), which was worth $731.5 million at the end of the second quarter. On the second spot was Mason Capital Management which amassed $80.5 million worth of shares. Newbrook Capital Advisors, Arrowstreet Capital, and Two Sigma Advisors 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 Mason Capital Management allocated the biggest weight to Xerox Holdings Corporation (NYSE:XRX), around 4.98% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, dishing out 4.91 percent of its 13F equity portfolio to XRX.

Due to the fact that Xerox Holdings Corporation (NYSE:XRX) has experienced declining sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their full holdings heading into Q3. At the top of the heap, Richard Gerson and Navroz D. Udwadia’s Falcon Edge Capital cut the biggest position of all the hedgies tracked by Insider Monkey, totaling close to $21.9 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund said goodbye to about $5.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 5 funds heading into Q3.

Let’s also examine hedge fund activity in other stocks similar to Xerox Holdings Corporation (NYSE:XRX). We will take a look at Shake Shack Inc (NYSE:SHAK), UMB Financial Corporation (NASDAQ:UMBF), Seaboard Corporation (NYSE:SEB), Datto Holding Corp. (NYSE:MSP), Avient Corporation (NYSE:AVNT), Terreno Realty Corporation (NYSE:TRNO), and Semtech Corporation (NASDAQ:SMTC). This group of stocks’ market values are closest to XRX’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHAK 20 459784 -3
UMBF 14 129934 1
SEB 13 129209 -1
MSP 12 3351238 -2
AVNT 20 145692 -4
TRNO 16 42148 4
SMTC 28 376303 7
Average 17.6 662044 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.6 hedge funds with bullish positions and the average amount invested in these stocks was $662 million. That figure was $1117 million in XRX’s case. Semtech Corporation (NASDAQ:SMTC) is the most popular stock in this table. On the other hand Datto Holding Corp. (NYSE:MSP) is the least popular one with only 12 bullish hedge fund positions. Xerox Holdings Corporation (NYSE:XRX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for XRX is 57.7. 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 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 beat the market again by 3.1 percentage points. Unfortunately XRX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on XRX were disappointed as the stock returned -15.9% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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