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Were Hedge Funds Right About Warming Up To The Hershey Company (HSY)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like The Hershey Company (NYSE:HSY).

Is The Hershey Company (NYSE:HSY) worth your attention right now? Prominent investors are taking an optimistic view. The number of bullish hedge fund bets improved by 5 recently. Our calculations also showed that HSY isn’t among the 30 most popular stocks among hedge funds (see the video below). HSY was in 27 hedge funds’ portfolios at the end of June. There were 22 hedge funds in our database with HSY holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GOTHAM ASSET MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s check out the latest hedge fund action encompassing The Hershey Company (NYSE:HSY).

How are hedge funds trading The Hershey Company (NYSE:HSY)?

Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in HSY over the last 16 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with HSY Positions

More specifically, Renaissance Technologies was the largest shareholder of The Hershey Company (NYSE:HSY), with a stake worth $568.4 million reported as of the end of March. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $77.7 million. GLG Partners, Citadel Investment Group, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds have jumped into The Hershey Company (NYSE:HSY) headfirst. Citadel Investment Group, managed by Ken Griffin, assembled the most outsized position in The Hershey Company (NYSE:HSY). Citadel Investment Group had $36.7 million invested in the company at the end of the quarter. Richard Chilton’s Chilton Investment Company also made a $2.1 million investment in the stock during the quarter. The following funds were also among the new HSY investors: Jeffrey Talpins’s Element Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to The Hershey Company (NYSE:HSY). We will take a look at Sprint Corporation (NYSE:S), Lam Research Corporation (NASDAQ:LRCX), Republic Services, Inc. (NYSE:RSG), and NXP Semiconductors NV (NASDAQ:NXPI). All of these stocks’ market caps match HSY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
S 25 956725 1
LRCX 35 1298891 3
RSG 24 635236 -6
NXPI 60 3941899 8
Average 36 1708188 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1708 million. That figure was $831 million in HSY’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Republic Services, Inc. (NYSE:RSG) is the least popular one with only 24 bullish hedge fund positions. The Hershey Company (NYSE:HSY) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on HSY as the stock returned 16.2% during the same time frame and outperformed the market by an even larger margin.

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

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