We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Trane Technologies plc (NYSE:TT).
Trane Technologies plc (NYSE:TT) shareholders have witnessed an increase in enthusiasm from smart money lately. Trane Technologies plc (NYSE:TT) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistic is 40. There were 35 hedge funds in our database with TT holdings at the end of March. Our calculations also showed that TT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Louis Navellier of Navellier & Associates
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the recent hedge fund action encompassing Trane Technologies plc (NYSE:TT).
Do Hedge Funds Think TT Is A Good Stock To Buy Now?
At the end of June, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TT over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Trane Technologies plc (NYSE:TT) was held by Generation Investment Management, which reported holding $340.8 million worth of stock at the end of June. It was followed by Impax Asset Management with a $284.2 million position. Other investors bullish on the company included AQR Capital Management, Junto Capital Management, and Fosse Capital Partners. In terms of the portfolio weights assigned to each position Fosse Capital Partners allocated the biggest weight to Trane Technologies plc (NYSE:TT), around 26.78% of its 13F portfolio. Junto Capital Management is also relatively very bullish on the stock, earmarking 2.85 percent of its 13F equity portfolio to TT.
As one would reasonably expect, specific money managers have jumped into Trane Technologies plc (NYSE:TT) headfirst. Junto Capital Management, managed by James Parsons, assembled the biggest position in Trane Technologies plc (NYSE:TT). Junto Capital Management had $89.3 million invested in the company at the end of the quarter. Jos Shaver’s Electron Capital Partners also initiated a $36.8 million position during the quarter. The other funds with new positions in the stock are Louis Navellier’s Navellier & Associates, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Clint Carlson’s Carlson Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Trane Technologies plc (NYSE:TT) but similarly valued. We will take a look at MSCI Inc (NYSE:MSCI), Chipotle Mexican Grill, Inc. (NYSE:CMG), Eni SpA (NYSE:E), Exelon Corporation (NASDAQ:EXC), Canadian Natural Resources Limited (NYSE:CNQ), Simon Property Group, Inc (NYSE:SPG), and Wipro Limited (NYSE:WIT). All of these stocks’ market caps match TT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSCI | 37 | 772551 | -1 |
| CMG | 35 | 3204586 | -6 |
| E | 3 | 69407 | -1 |
| EXC | 35 | 1194570 | -9 |
| CNQ | 27 | 777129 | -2 |
| SPG | 37 | 666243 | 6 |
| WIT | 14 | 164007 | 1 |
| Average | 26.9 | 978356 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $978 million. That figure was $1250 million in TT’s case. MSCI Inc (NYSE:MSCI) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 3 bullish hedge fund positions. Trane Technologies plc (NYSE:TT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TT is 84.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately TT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on TT were disappointed as the stock returned -7.4% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Trane Technologies Plc (NYSE:TT)
Follow Trane Technologies Plc (NYSE:TT)
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Disclosure: None. This article was originally published at Insider Monkey.
