World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Allegion plc (NYSE:ALLE) has experienced an increase in support from the world’s most elite money managers recently. Our calculations also showed that ALLE isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the recent hedge fund action encompassing Allegion plc (NYSE:ALLE).
Hedge fund activity in Allegion plc (NYSE:ALLE)
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in ALLE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, David Blood and Al Gore’s Generation Investment Management has the biggest position in Allegion plc (NYSE:ALLE), worth close to $212.5 million, amounting to 1.5% of its total 13F portfolio. The second largest stake is held by Intermede Investment Partners, led by Barry Dargan, holding a $77.7 million position; the fund has 4.6% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise John Overdeck and David Siegel’s Two Sigma Advisors, Clint Carlson’s Carlson Capital and Dmitry Balyasny’s Balyasny Asset Management.
As industrywide interest jumped, specific money managers were breaking ground themselves. Carlson Capital, managed by Clint Carlson, assembled the most outsized position in Allegion plc (NYSE:ALLE). Carlson Capital had $26.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $11 million investment in the stock during the quarter. The other funds with brand new ALLE positions are Brandon Haley’s Holocene Advisors, Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, and Richard Driehaus’s Driehaus Capital.
Let’s now review hedge fund activity in other stocks similar to Allegion plc (NYSE:ALLE). We will take a look at Teva Pharmaceutical Industries Limited (NYSE:TEVA), Apache Corporation (NYSE:APA), Camden Property Trust (NYSE:CPT), and AXA Equitable Holdings, Inc. (NYSE:EQH). All of these stocks’ market caps are similar to ALLE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TEVA | 25 | 942298 | -7 |
| APA | 22 | 614988 | -6 |
| CPT | 19 | 316129 | -5 |
| EQH | 32 | 1112788 | -3 |
| Average | 24.5 | 746551 | -5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $747 million. That figure was $406 million in ALLE’s case. AXA Equitable Holdings, Inc. (NYSE:EQH) is the most popular stock in this table. On the other hand Camden Property Trust (NYSE:CPT) is the least popular one with only 19 bullish hedge fund positions. Allegion plc (NYSE:ALLE) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ALLE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ALLE investors were disappointed as the stock returned -6% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
