Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Modine Manufacturing Company (NYSE:MOD) was in 18 hedge funds’ portfolios at the end of September. MOD investors should be aware of a decrease in hedge fund interest lately. There were 20 hedge funds in our database with MOD holdings at the end of the previous quarter. Our calculations also showed that MOD isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 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.
Bruce Kovner of Caxton Associates
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action regarding Modine Manufacturing Company (NYSE:MOD).
How have hedgies been trading Modine Manufacturing Company (NYSE:MOD)?
At Q3’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MOD over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the biggest position in Modine Manufacturing Company (NYSE:MOD). GAMCO Investors has a $17 million position in the stock, comprising 0.1% of its 13F portfolio. On GAMCO Investors’s heels is DC Capital Partners, managed by Douglas Dethy, which holds a $11.4 million position; 10% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish include Chuck Royce’s Royce & Associates, David E. Shaw’s D E Shaw and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position DC Capital Partners allocated the biggest weight to Modine Manufacturing Company (NYSE:MOD), around 9.98% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to MOD.
Since Modine Manufacturing Company (NYSE:MOD) has experienced falling interest from the smart money, it’s easy to see that there was a specific group of fund managers that elected to cut their positions entirely in the third quarter. Intriguingly, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors cut the largest investment of the 750 funds followed by Insider Monkey, totaling close to $0.9 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund dropped about $0.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Modine Manufacturing Company (NYSE:MOD). These stocks are Independence Holding Company (NYSE:IHC), CURO Group Holdings Corp. (NYSE:CURO), Revance Therapeutics Inc (NASDAQ:RVNC), and Movado Group, Inc (NYSE:MOV). This group of stocks’ market values resemble MOD’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IHC | 4 | 17598 | 1 |
| CURO | 16 | 90355 | 3 |
| RVNC | 6 | 21220 | -4 |
| MOV | 10 | 27501 | -10 |
| Average | 9 | 39169 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $66 million in MOD’s case. CURO Group Holdings Corp. (NYSE:CURO) is the most popular stock in this table. On the other hand Independence Holding Company (NYSE:IHC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Modine Manufacturing Company (NYSE:MOD) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MOD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MOD were disappointed as the stock returned -34.7% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
