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Were Hedge Funds Right About Selling The Procter & Gamble Company (PG)?

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. 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 The Procter & Gamble Company (NYSE:PG) and determine whether the smart money was really smart about this stock.

The Procter & Gamble Company (NYSE:PG) was in 77 hedge funds’ portfolios at the end of March. PG investors should be aware of a decrease in hedge fund sentiment lately. There were 79 hedge funds in our database with PG positions at the end of the previous quarter. Our calculations also showed that PG 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.

TRIAN PARTNERS

Nelson Peltz of Trian Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. With all of this in mind let’s check out the fresh hedge fund action surrounding The Procter & Gamble Company (NYSE:PG).

Hedge fund activity in The Procter & Gamble Company (NYSE:PG)

At the end of the first quarter, a total of 77 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the fourth quarter of 2019. On the other hand, there were a total of 56 hedge funds with a bullish position in PG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Trian Partners, managed by Nelson Peltz, holds the most valuable position in The Procter & Gamble Company (NYSE:PG). Trian Partners has a $3.4138 billion position in the stock, comprising 49.2% of its 13F portfolio. On Trian Partners’s heels is Cedar Rock Capital, led by Andy Brown, holding a $1.2308 billion position; 32.9% of its 13F portfolio is allocated to the company. Remaining peers with similar optimism consist of Cliff Asness’s AQR Capital Management, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to The Procter & Gamble Company (NYSE:PG), around 49.2% of its 13F portfolio. Cedar Rock Capital is also relatively very bullish on the stock, setting aside 32.94 percent of its 13F equity portfolio to PG.

Judging by the fact that The Procter & Gamble Company (NYSE:PG) has experienced declining sentiment from the smart money, it’s easy to see that there were a few funds that decided to sell off their positions entirely last quarter. At the top of the heap, Rajiv Jain’s GQG Partners dropped the biggest position of all the hedgies watched by Insider Monkey, comprising an estimated $276 million in stock, and Michael Kharitonov and Jon David McAuliffe’s Voleon Capital was right behind this move, as the fund sold off about $15.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to The Procter & Gamble Company (NYSE:PG). These stocks are Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Mastercard Incorporated (NYSE:MA), UnitedHealth Group Inc. (NYSE:UNH), and Intel Corporation (NASDAQ:INTC). This group of stocks’ market values match PG’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSM 54 4298613 -9
MA 139 11896575 14
UNH 104 6665163 13
INTC 73 5958759 15
Average 92.5 7204778 8.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 92.5 hedge funds with bullish positions and the average amount invested in these stocks was $7205 million. That figure was $9519 million in PG’s case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the least popular one with only 54 bullish hedge fund positions. The Procter & Gamble Company (NYSE:PG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately PG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PG investors were disappointed as the stock returned 7.9% 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.