Were Hedge Funds Right About Getting Out Of Altria Group Inc (MO)?

Abigail Fisher

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Altria Group Inc (NYSE:MO).

Is Altria Group Inc (NYSE:MO) ready to rally soon? The best stock pickers were cutting their exposure. The number of bullish hedge fund bets dropped by 3 in recent months. Altria Group Inc (NYSE:MO) was in 43 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 54. Our calculations also showed that MO isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Steven Tananbaum - GoldenTree Asset Management
Steven Tananbaum - GoldenTree Asset Management

Steven Tananbaum of GoldenTree Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 best artificial intelligence stocks to pick the best growth stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to take a glance at the latest hedge fund action regarding Altria Group Inc (NYSE:MO).

How have hedgies been trading Altria Group Inc (NYSE:MO)?

At second quarter's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the first quarter of 2020. On the other hand, there were a total of 38 hedge funds with a bullish position in MO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Altria Group Inc (NYSE:MO), which was worth $298.1 million at the end of the third quarter. On the second spot was Hengistbury Investment Partners which amassed $150.2 million worth of shares. Two Sigma Advisors, AQR Capital Management, and Citadel Investment Group 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 Hengistbury Investment Partners allocated the biggest weight to Altria Group Inc (NYSE:MO), around 22.7% of its 13F portfolio. Kehrs Ridge Capital is also relatively very bullish on the stock, earmarking 10.44 percent of its 13F equity portfolio to MO.

Judging by the fact that Altria Group Inc (NYSE:MO) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there is a sect of hedgies that decided to sell off their entire stakes last quarter. Interestingly, John Armitage's Egerton Capital Limited dumped the biggest position of the 750 funds tracked by Insider Monkey, valued at about $77.7 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $65.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Altria Group Inc (NYSE:MO). These stocks are Zoom Video Communications, Inc. (NASDAQ:ZM), Becton, Dickinson and Company (NYSE:BDX), Rio Tinto Group (NYSE:RIO), Crown Castle International Corp. (REIT) (NYSE:CCI), Cigna Corporation (NYSE:CI), Prologis Inc (NYSE:PLD), and Caterpillar Inc. (NYSE:CAT). All of these stocks' market caps resemble MO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZM,48,6758811,1 BDX,53,1971353,-3 RIO,20,1324146,0 CCI,43,1988345,3 CI,72,2871074,-2 PLD,35,433481,-5 CAT,39,2667687,5 Average,44.3,2573557,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.3 hedge funds with bullish positions and the average amount invested in these stocks was $2574 million. That figure was $1290 million in MO's case. Cigna Corporation (NYSE:CI) is the most popular stock in this table. On the other hand Rio Tinto Group (NYSE:RIO) is the least popular one with only 20 bullish hedge fund positions. Altria Group Inc (NYSE:MO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MO is 48. 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. 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 30% in 2020 through October 23rd and surpassed the market by 21 percentage points. Unfortunately MO wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MO investors were disappointed as the stock returned 1.6% since the end of June (through 10/23) 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.

Get real-time email alerts: Follow Altria Group Inc. (NYSE:MO)

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

Related Content