Were Hedge Funds Right About Souring On 3M Company (MMM)?

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter of 2018. Trends reversed 180 degrees during the first half of 2019 amid Powell’s pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the second quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards 3M Company (NYSE:MMM).

3M Company (NYSE:MMM) investors should be aware of a decrease in enthusiasm from smart money of late. MMM was in 40 hedge funds’ portfolios at the end of June. There were 43 hedge funds in our database with MMM positions at the end of the previous quarter. Our calculations also showed that MMM isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).

If you’d ask most market participants, hedge funds are assumed to be unimportant, old financial vehicles of yesteryear. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the leaders of this group, approximately 750 funds. These hedge fund managers command the lion’s share of all hedge funds’ total capital, and by paying attention to their first-class stock picks, Insider Monkey has brought to light numerous investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship hedge fund strategy surpassed the S&P 500 index by around 5 percentage points a year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

John Overdeck of Two Sigma

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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 analyze the key hedge fund action regarding 3M Company (NYSE:MMM).

What have hedge funds been doing with 3M Company (NYSE:MMM)?

At the end of the second quarter, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in MMM 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.

No of Hedge Funds with MMM Positions

More specifically, Two Sigma Advisors was the largest shareholder of 3M Company (NYSE:MMM), with a stake worth $189.8 million reported as of the end of March. Trailing Two Sigma Advisors was Arrowstreet Capital, which amassed a stake valued at $146.7 million. AQR Capital Management, Point72 Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that 3M Company (NYSE:MMM) has faced declining sentiment from the smart money, logic holds that there exists a select few money managers who were dropping their full holdings by the end of the second quarter. Interestingly, John Osterweis’s Osterweis Capital Management sold off the largest position of all the hedgies tracked by Insider Monkey, comprising an estimated $19.8 million in stock, and Ilan Assouline’s Circle Road Advisors was right behind this move, as the fund dropped about $6.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to 3M Company (NYSE:MMM). We will take a look at NextEra Energy, Inc. (NYSE:NEE), Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR), NVIDIA Corporation (NASDAQ:NVDA), and QUALCOMM, Incorporated (NASDAQ:QCOM). This group of stocks’ market caps resemble MMM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEE 40 742117 4
PBR 32 2194573 2
NVDA 45 1780215 2
QCOM 61 1721699 16
Average 44.5 1609651 6

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.5 hedge funds with bullish positions and the average amount invested in these stocks was $1610 million. That figure was $939 million in MMM’s case. QUALCOMM, Incorporated (NASDAQ:QCOM) is the most popular stock in this table. On the other hand Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR) is the least popular one with only 32 bullish hedge fund positions. 3M Company (NYSE:MMM) 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 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 MMM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MMM investors were disappointed as the stock returned -4.3% 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 in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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