Many prominent hedge funds invested in companies selling discretionary (or non-essential) goods or raw materials in the fourth quarter of 2017, according to 13F reports compiled and analyzed by Reuters.
We're now 45 days out from the end of the last quarter of 2017, which means hedge funds with $100 million in assets under management or more have reached the deadline to submit 13F filings for that period. 13Fs provide details about hedge fund holdings, offering key insights as to how top money managers around the country opted to invest their money in the most recent quarter.
Consumer Discretionary Sector Won Out
According to the Reuters report, many hedge funds made fourth-quarter bets in the "consumer discretionary" sector. This category refers to goods which are non-essential, but which consumers will purchase if their income enables them to.
Companies in this area benefit when wages rise, so hedge funds investing in this space could be well-positioned in spite of inflation concerns that have recently surfaced. (See also: 9 Common Effects of Inflation.)
Billionaire David Einhorn, leader of Greenlight Capital, added 13 new positions in consumer discretionary companies, according to his 13F. This includes new stakes in SeaWorld Entertainment Inc. (SEAS) and the department store Nordstrom Inc. (JWN).
Meanwhile, billionaire Julian Robertson's Tiger Management placed money into Penske Automotive Group Inc. (PAG), as well as rival pizza delivery chains Papa John's International Inc. (PZZA) and Domino's Pizza Inc. (DPZ).
Bill Ackman, the billionaire head of Pershing Square Capital, added sportswear titan Nike Inc. (NKE) to his holdings, buying up close to 6 million shares in Q4.
Finally, George Soros' Soros Fund Management initiated new stakes in retailers like Target Corp. (TGT) and Overstock.com Inc. (OSTK). In the process, billionaire Soros became the third largest shareholder for Overstock, the popular online retailer.
Wage Increase Prompted Shift
It's likely that these top investors recognized significant wage increases as a possible reason for the shift in investment toward consumer discretionary companies. Indeed, U.S. wages posted their largest annual increase since the end of the 2008 financial crisis for the previous year.
At the same time, consumer prices rose more than expected. Over the past weeks, analysts have grown concerned about the possibility of a rise in inflation, which could prompt the Federal Reserve to alter its interest rate shifts.
13F reports can be a valuable way to see how top investors used their money. However, they look backward, reflecting activity only as recent as 45 days prior. Because investors can change their holdings multiple times per day, it's unlikely that the information presented in a 13F is still entirely accurate. For that reason, everyday investors are cautioned to not base their investment decisions exclusively on 13F information.