We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about ITT Corp (NYSE:ITT) in this article.
ITT Corp (NYSE:ITT) investors should pay attention to an increase in hedge fund interest recently. ITT was in 28 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with ITT positions at the end of the previous quarter. Our calculations also showed that ITT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the new hedge fund action encompassing ITT Corp (NYSE:ITT).
What does smart money think about ITT Corp (NYSE:ITT)?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in ITT a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in ITT Corp (NYSE:ITT) was held by Adage Capital Management, which reported holding $126.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $118.6 million position. Other investors bullish on the company included Paradice Investment Management, Blue Harbour Group, and Scopus Asset Management. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to ITT Corp (NYSE:ITT), around 7.48% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, dishing out 7.1 percent of its 13F equity portfolio to ITT.
Now, specific money managers were leading the bulls’ herd. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, initiated the biggest position in ITT Corp (NYSE:ITT). Cinctive Capital Management had $16.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $10.2 million investment in the stock during the quarter. The following funds were also among the new ITT investors: Robert Bishop’s Impala Asset Management and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as ITT Corp (NYSE:ITT) but similarly valued. These stocks are Proofpoint Inc (NASDAQ:PFPT), Morningstar, Inc. (NASDAQ:MORN), Paylocity Holding Corp (NASDAQ:PCTY), and American Campus Communities, Inc. (NYSE:ACC). This group of stocks’ market values are closest to ITT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PFPT | 35 | 395274 | -10 |
| MORN | 21 | 286273 | -4 |
| PCTY | 26 | 588280 | -4 |
| ACC | 21 | 342481 | -1 |
| Average | 25.75 | 403077 | -4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $403 million. That figure was $757 million in ITT’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Morningstar, Inc. (NASDAQ:MORN) is the least popular one with only 21 bullish hedge fund positions. ITT Corp (NYSE:ITT) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ITT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ITT were disappointed as the stock returned -42% during the same time period 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 this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
