While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Arrow Electronics, Inc. (NYSE:ARW).
Is Arrow Electronics, Inc. (NYSE:ARW) a marvelous stock to buy now? Prominent investors were becoming hopeful. The number of long hedge fund bets advanced by 7 lately. Arrow Electronics, Inc. (NYSE:ARW) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistic is 34. Our calculations also showed that ARW isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 23 hedge funds in our database with ARW holdings at the end of March.
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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Bernard Horn of Polaris Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to take a gander at the fresh hedge fund action regarding Arrow Electronics, Inc. (NYSE:ARW).
Do Hedge Funds Think ARW Is A Good Stock To Buy Now?
At the end of June, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from one quarter earlier. On the other hand, there were a total of 29 hedge funds with a bullish position in ARW a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Arrow Electronics, Inc. (NYSE:ARW) was held by AQR Capital Management, which reported holding $311.1 million worth of stock at the end of June. It was followed by Lyrical Asset Management with a $188.8 million position. Other investors bullish on the company included Arrowstreet Capital, Polaris Capital Management, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Lyrical Asset Management allocated the biggest weight to Arrow Electronics, Inc. (NYSE:ARW), around 2.29% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 2.04 percent of its 13F equity portfolio to ARW.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the biggest position in Arrow Electronics, Inc. (NYSE:ARW). Citadel Investment Group had $3 million invested in the company at the end of the quarter. Ray Dalio's Bridgewater Associates also initiated a $2.6 million position during the quarter. The following funds were also among the new ARW investors: Mika Toikka's AlphaCrest Capital Management, Michael Gelband's ExodusPoint Capital, and Paul Marshall and Ian Wace's Marshall Wace LLP.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Arrow Electronics, Inc. (NYSE:ARW) but similarly valued. We will take a look at Polaris Inc. (NYSE:PII), Life Storage, Inc. (NYSE:LSI), Mirati Therapeutics, Inc. (NASDAQ:MRTX), TELUS International (Cda) Inc. (NYSE:TIXT), Concentrix Corporation (NASDAQ:CNXC), National Retail Properties, Inc. (NYSE:NNN), and Ovintiv Inc. (NYSE:OVV). All of these stocks' market caps match ARW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PII,20,464211,-9 LSI,21,261561,-5 MRTX,55,2790783,-2 TIXT,6,19229,-4 CNXC,21,601344,-2 NNN,19,188064,-3 OVV,40,739285,10 Average,26,723497,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $712 million in ARW's case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand TELUS International (Cda) Inc. (NYSE:TIXT) is the least popular one with only 6 bullish hedge fund positions. Arrow Electronics, Inc. (NYSE:ARW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ARW is 61. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on ARW as the stock returned 3.6% since the end of Q2 (through 10/15) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.