BALTIMORE (Stockpickr) -- Mr. Market is in recovery mode this fall as the stocks that struggled at the beginning of the season start building more buying pressure behind them. This is creating a very attractive environment for consumer discretionary stocks -- and hedge funds are buying them with both hands.
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It's not just the bounce trade that's making consumer stocks look so attractive here. We're also smack-dab in the middle of earnings season, and the consumer discretionary sector has been on fire fundamentally. As of this writing, a full 80% of consumer discretionary stocks in the S&P 500 have beaten Wall Street's estimates for the third quarter.
And some of funds' favorite consumer stocks have yet to report their numbers. Now the question is whether it makes sense to follow the "smart money" into their favorite consumer discretionary stocks this month.
Today, we'll answer that question by peeking at the latest round of 13F filings.
Institutional investors with more than $100 million in assets are required to file a 13F, a form that breaks down their stock positions for public consumption. From hedge funds to mutual funds to insurance companies, any professional investors who manage more than that $100 million watermark are required to file a 13F.
In total, approximately 3,800 firms file 13F forms each quarter, and by comparing one quarter's filing to another, we can see how any single fund manager is moving their portfolio around. While the data is generally delayed by about a quarter, that's not necessarily a bad thing – research shows that applying a lag to institutional holdings can generate positive alpha in some cases. That's all the more reason to crack open the moves being made with pro investors' $20.5 trillion under management.
And since it's still very early in 13F season, we're able to use a small sampling of early filers to get a sneak peek at what funds are doing before the rest of the forms hit the SEC's servers.
Today, we'll focus on hedge funds' 5 favorite consumer stocks.