“Big money got a heavy hand, Big money take control, Big money got a mean streak, Big money got no soul...” Neil Peart
Big money is underweight Wal-Mart, just as the company is on the tail end of a multi-year comp slump, that we think has bottomed. In fact, based on the Hedgeye Retail Sentiment Monitor (see chart below), WMT’s current score of 69 is at its lowest level in over four years – and has declined from 94 at this time last year.
We’re rarely going to make a sentiment call (it’s just not what we do), but when the fundamentals are improving, returns are inflecting and it’s not represented in sentiment, we definitely pay attention.
We think that Wal-Mart is outperforming this holiday. That’s in part because of a turnaround in its merchandise strategy from last year where the only category that comped positive was food, and also due to the layaway plan, which helps 4Q (even if a product was laid away in 3Q). But we also think that Wal-Mart will be among the biggest beneficiaries of our Macro team’s King Dollar theme, which calls for Consumption to follow the stronger dollar, with commodity prices easing on the margin.
In that regard, we can reasonably quantify how underowned WMT actually is by looking at public disclosure of its shareholder list. The bottom line is that when people (especially big long only money) realize that they need to at least get equal weight WMT, we think that roughly 6% of the float will need to trade hands. They’ll be competing with WMT, which will also be in the market buying 5-6% of its stock.
Here’s our math…
The S&P uses a float adjusted Market Cap re the sizing of S&P 500 components. With a float adjusted market cap of $104Bn, WMT accounts for 0.95% of the S&P500, which has a float adjusted market cap of $10.9T.
Looking at the top shareholders of WMT by AUM (not top holders), only 12 of the top 50 own enough of the stock to be considered equal weight or over-weight the stock relative to its representative weighting in the S&P.
- According to the Investment Company Institute, approximately ~48% of mutual fund assets are allocated to domestic and international stock funds under which WMT would fall.
- Assuming that 48% of fund assets are benchmarked to the S&P and its 0.95% WMT position, an equal weight position of WMT would equate to roughly 0.46% of a fund’s total assets.
Among the Top 80% of funds that currently own WMT as ranked by AUM, WMT accounts for only 0.39% of the average portfolio – over $6Bn shy of what this sample alone would need to acquire in order to be equal weight, or ~6% of the float. Given that our analysis does not account for the funds that don’t have a position in WMT at all, this figure actually understates what true demand in the market would ultimately be.
The following table of Top 50 shareholders by AUM is purely based on SEC filings: