How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding International Flavors & Fragrances Inc (NYSE:IFF) and determine whether hedge funds had an edge regarding this stock.
International Flavors & Fragrances Inc (NYSE:IFF) was in 31 hedge funds’ portfolios at the end of June. The all time high for this statistics is 28. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. IFF has experienced an increase in hedge fund sentiment in recent months. There were 28 hedge funds in our database with IFF positions at the end of the first quarter. Our calculations also showed that IFF isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Alex Litowitz of Magnetar Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a glance at the fresh hedge fund action surrounding International Flavors & Fragrances Inc (NYSE:IFF).
How have hedgies been trading International Flavors & Fragrances Inc (NYSE:IFF)?
At Q2’s end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IFF over the last 20 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the most valuable position in International Flavors & Fragrances Inc (NYSE:IFF). GAMCO Investors has a $43.8 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Renaissance Technologies, which holds a $31.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Sandbar Asset Management allocated the biggest weight to International Flavors & Fragrances Inc (NYSE:IFF), around 3.17% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, dishing out 1.71 percent of its 13F equity portfolio to IFF.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into International Flavors & Fragrances Inc (NYSE:IFF) headfirst. Renaissance Technologies, initiated the largest position in International Flavors & Fragrances Inc (NYSE:IFF). Renaissance Technologies had $31.2 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $22 million investment in the stock during the quarter. The following funds were also among the new IFF investors: Matthew Hulsizer’s PEAK6 Capital Management, Alec Litowitz and Ross Laser’s Magnetar Capital, and Andrew Weiss’s Weiss Asset Management.
Let’s go over hedge fund activity in other stocks similar to International Flavors & Fragrances Inc (NYSE:IFF). We will take a look at Duke Realty Corporation (NYSE:DRE), Steris Plc (NYSE:STE), EXACT Sciences Corporation (NASDAQ:EXAS), Pinterest, Inc. (NYSE:PINS), Avangrid, Inc. (NYSE:AGR), Burlington Stores Inc (NYSE:BURL), and Synchrony Financial (NYSE:SYF). This group of stocks’ market valuations resemble IFF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DRE | 19 | 102859 | 3 |
| STE | 40 | 545240 | 5 |
| EXAS | 43 | 993223 | 9 |
| PINS | 53 | 1067483 | 15 |
| AGR | 18 | 132976 | 0 |
| BURL | 38 | 1475273 | -2 |
| SYF | 46 | 1563925 | 9 |
| Average | 36.7 | 840140 | 5.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.7 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $234 million in IFF’s case. Pinterest, Inc. (NYSE:PINS) is the most popular stock in this table. On the other hand Avangrid, Inc. (NYSE:AGR) is the least popular one with only 18 bullish hedge fund positions. International Flavors & Fragrances Inc (NYSE:IFF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IFF is 56.6. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately IFF wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); IFF investors were disappointed as the stock returned 0.4% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow International Flavors & Fragrances Inc (NYSE:IFF)
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Disclosure: None. This article was originally published at Insider Monkey.
