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Were Hedge Funds Right About Piling Into The Clorox Company (CLX)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards The Clorox Company (NYSE:CLX) and determine whether hedge funds skillfully traded this stock.

The Clorox Company (NYSE:CLX) shareholders have witnessed an increase in activity from the world’s largest hedge funds in recent months. CLX was in 41 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with CLX holdings at the end of the previous quarter. Our calculations also showed that CLX 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 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. Keeping this in mind we’re going to review the latest hedge fund action encompassing The Clorox Company (NYSE:CLX).

What does smart money think about The Clorox Company (NYSE:CLX)?

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 52% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in CLX over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Southport Management was the largest shareholder of The Clorox Company (NYSE:CLX), with a stake worth $1212.8 million reported as of the end of September. Trailing Southport Management was Cedar Rock Capital, which amassed a stake valued at $458.9 million. Renaissance Technologies, AQR Capital Management, and Millennium Management 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 Southport Management allocated the biggest weight to The Clorox Company (NYSE:CLX), around 13.52% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, earmarking 12.28 percent of its 13F equity portfolio to CLX.

As one would reasonably expect, key money managers were leading the bulls’ herd. Southport Management, managed by Jonathan Dawson, initiated the biggest position in The Clorox Company (NYSE:CLX). Southport Management had $1.2128 billion invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $13.1 million position during the quarter. The following funds were also among the new CLX investors: Dmitry Balyasny’s Balyasny Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Lee Ainslie’s Maverick Capital.

Let’s now review hedge fund activity in other stocks similar to The Clorox Company (NYSE:CLX). These stocks are American Water Works Company, Inc. (NYSE:AWK), CoStar Group Inc (NASDAQ:CSGP), V.F. Corporation (NYSE:VFC), and ResMed Inc. (NYSE:RMD). This group of stocks’ market caps are similar to CLX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AWK 30 633418 1
CSGP 40 1689677 -4
VFC 19 171262 -10
RMD 33 167543 12
Average 30.5 665475 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $665 million. That figure was $2344 million in CLX’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks The Clorox Company (NYSE:CLX) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CLX as the stock returned 27.3% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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