Hedge Funds Are Dumping Hillenbrand, Inc. (HI)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Hillenbrand, Inc. (NYSE:HI) based on those filings.

Hillenbrand, Inc. (NYSE:HI) was in 14 hedge funds’ portfolios at the end of March. HI has experienced a decrease in support from the world’s most elite money managers lately. There were 24 hedge funds in our database with HI holdings at the end of the previous quarter. Our calculations also showed that HI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Barry Rosenstein of JANA Partners

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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the latest hedge fund action surrounding Hillenbrand, Inc. (NYSE:HI).

What have hedge funds been doing with Hillenbrand, Inc. (NYSE:HI)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -42% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in HI a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Among these funds, JANA Partners held the most valuable stake in Hillenbrand, Inc. (NYSE:HI), which was worth $70 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $31.7 million worth of shares. Two Sigma Advisors, Skylands Capital, and Holocene Advisors 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 JANA Partners allocated the biggest weight to Hillenbrand, Inc. (NYSE:HI), around 8.92% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 0.76 percent of its 13F equity portfolio to HI.

Judging by the fact that Hillenbrand, Inc. (NYSE:HI) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedgies that decided to sell off their full holdings in the first quarter. Interestingly,  Renaissance Technologies said goodbye to the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $10.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $6.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 10 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Hillenbrand, Inc. (NYSE:HI) but similarly valued. We will take a look at Worthington Industries, Inc. (NYSE:WOR), Insmed Incorporated (NASDAQ:INSM), Forward Air Corporation (NASDAQ:FWRD), and Builders FirstSource, Inc. (NASDAQ:BLDR). This group of stocks’ market values are closest to HI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $194 million. That figure was $124 million in HI’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand Worthington Industries, Inc. (NYSE:WOR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Hillenbrand, Inc. (NYSE:HI) is even less popular than WOR. Hedge funds clearly dropped the ball on HI as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. A small number of hedge funds were also right about betting on HI as the stock returned 35.8% so far in the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.