Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Ingersoll-Rand Inc. (NYSE:IR) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Ingersoll-Rand Inc. (NYSE:IR) was in 47 hedge funds’ portfolios at the end of the fourth quarter of 2019. IR shareholders have witnessed an increase in enthusiasm from smart money lately. There were 45 hedge funds in our database with IR holdings at the end of the previous quarter. Our calculations also showed that IR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a gander at the key hedge fund action encompassing Ingersoll-Rand Inc. (NYSE:IR).
How have hedgies been trading Ingersoll-Rand Inc. (NYSE:IR)?
At the end of the fourth quarter, a total of 47 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 43 hedge funds held shares or bullish call options in IR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Generation Investment Management was the largest shareholder of Ingersoll-Rand Inc.(NYSE:IR), with a stake worth $333.1 million reported as of the end of September. Trailing Generation Investment Management was Impax Asset Management, which amassed a stake valued at $140 million. Alyeska Investment Group, D E Shaw, and Two Sigma 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 Sandbar Asset Management allocated the biggest weight to Ingersoll-Rand Inc. (NYSE:IR), around 5.35% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, setting aside 3.28 percent of its 13F equity portfolio to IR.
As aggregate interest increased, key money managers were leading the bulls’ herd. Suvretta Capital Management, managed by Aaron Cowen, established the most valuable position in Ingersoll-Rand Inc. (NYSE:IR). Suvretta Capital Management had $67.8 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also initiated a $17.8 million position during the quarter. The following funds were also among the new IR investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Louis Bacon’s Moore Global Investments, and Michael Gelband’s ExodusPoint Capital.
Let’s now review hedge fund activity in other stocks similar to Ingersoll-Rand Inc. (NYSE:IR). We will take a look at Sirius XM Holdings Inc (NASDAQ:SIRI), PPG Industries, Inc. (NYSE:PPG), LyondellBasell Industries NV (NYSE:LYB), and Johnson Controls International plc (NYSE:JCI). This group of stocks’ market valuations resemble IR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SIRI | 31 | 1431150 | -5 |
| PPG | 35 | 465224 | 5 |
| LYB | 40 | 377389 | 6 |
| JCI | 37 | 1119829 | 13 |
| Average | 35.75 | 848398 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $848 million. That figure was $1412 million in IR’s case. LyondellBasell Industries NV (NYSE:LYB) is the most popular stock in this table. On the other hand Sirius XM Holdings Inc (NASDAQ:SIRI) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Ingersoll-Rand Inc.(NYSE:IR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th and still beat the market by 3.1 percentage points. Unfortunately IR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IR were disappointed as the stock returned -36% during the first two months of 2020 (through March 11th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
