Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Hill-Rom Holdings, Inc. (NYSE:HRC) and compare its performance to hedge funds’ consensus picks in 2019.
Hill-Rom Holdings, Inc. (NYSE:HRC) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. HRC was in 26 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with HRC holdings at the end of the previous quarter. Our calculations also showed that HRC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ken Fisher of Fisher Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s take a look at the fresh hedge fund action regarding Hill-Rom Holdings, Inc. (NYSE:HRC).
Hedge fund activity in Hill-Rom Holdings, Inc. (NYSE:HRC)
Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in HRC over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Hill-Rom Holdings, Inc. (NYSE:HRC), which was worth $269 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $105.4 million worth of shares. Millennium Management, Polar Capital, and AQR Capital Management 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 Select Equity Group allocated the biggest weight to Hill-Rom Holdings, Inc. (NYSE:HRC), around 1.82% of its 13F portfolio. Sectoral Asset Management is also relatively very bullish on the stock, setting aside 1.6 percent of its 13F equity portfolio to HRC.
Seeing as Hill-Rom Holdings, Inc. (NYSE:HRC) has faced declining sentiment from the smart money, it’s easy to see that there exists a select few fund managers who were dropping their positions entirely heading into Q4. It’s worth mentioning that Steve Cohen’s Point72 Asset Management dumped the largest stake of the 750 funds watched by Insider Monkey, comprising about $1.5 million in call options. Israel Englander’s fund, Millennium Management, also cut its call options, about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Hill-Rom Holdings, Inc. (NYSE:HRC) but similarly valued. These stocks are Axalta Coating Systems Ltd (NYSE:AXTA), Gentex Corporation (NASDAQ:GNTX), Five Below Inc (NASDAQ:FIVE), and Hexcel Corporation (NYSE:HXL). This group of stocks’ market valuations match HRC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXTA | 56 | 2298717 | 15 |
| GNTX | 28 | 468671 | 5 |
| FIVE | 34 | 469205 | -4 |
| HXL | 26 | 122315 | 3 |
| Average | 36 | 839727 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $663 million in HRC’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Hexcel Corporation (NYSE:HXL) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Hill-Rom Holdings, Inc. (NYSE:HRC) is even less popular than HXL. Hedge funds dodged a bullet by taking a bearish stance towards HRC. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately HRC wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HRC investors were disappointed as the stock returned 29.2% in 2019 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
