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Were Hedge Funds Right About Walmart Inc. (WMT)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Walmart Inc. (NYSE:WMT) based on that data and determine whether they were really smart about the stock.

Is Walmart Inc. (NYSE:WMT) an outstanding investment right now? The best stock pickers were becoming more confident. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that WMT 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). WMT was in 55 hedge funds’ portfolios at the end of March. There were 52 hedge funds in our database with WMT positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most stock holders, hedge funds are assumed to be worthless, outdated investment vehicles of the past. While there are over 8000 funds trading at present, Our experts choose to focus on the bigwigs of this club, approximately 850 funds. These money managers manage the majority of the smart money’s total asset base, and by shadowing their best equity investments, Insider Monkey has uncovered numerous investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Phill Gross of Adage Capital Management

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 let’s view the fresh hedge fund action surrounding Walmart Inc. (NYSE:WMT).

What does smart money think about Walmart Inc. (NYSE:WMT)?

At the end of the first quarter, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in WMT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Walmart Inc. (NYSE:WMT), which was worth $1318.3 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $1221.1 million worth of shares. Renaissance Technologies, AQR Capital Management, and Adage Capital 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Walmart Inc. (NYSE:WMT), around 7.6% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, setting aside 7.14 percent of its 13F equity portfolio to WMT.

As one would reasonably expect, key money managers have jumped into Walmart Inc. (NYSE:WMT) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Walmart Inc. (NYSE:WMT). Arrowstreet Capital had $85.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $18.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and John Overdeck and David Siegel’s Two Sigma Advisors.

Let’s check out hedge fund activity in other stocks similar to Walmart Inc. (NYSE:WMT). These stocks are JPMorgan Chase & Co. (NYSE:JPM), The Procter & Gamble Company (NYSE:PG), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), and Mastercard Incorporated (NYSE:MA). All of these stocks’ market caps resemble WMT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
JPM 112 9730557 14
PG 77 9519275 -2
TSM 54 4298613 -9
MA 139 11896575 14
Average 95.5 8861255 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 95.5 hedge funds with bullish positions and the average amount invested in these stocks was $8861 million. That figure was $4887 million in WMT’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. Walmart Inc. (NYSE:WMT) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately WMT wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WMT investors were disappointed as the stock returned 5.9% 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.