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. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards PPG Industries, Inc. (NYSE:PPG).
PPG Industries, Inc. (NYSE:PPG) investors should be aware of an increase in hedge fund interest recently. PPG was in 35 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 30 hedge funds in our database with PPG holdings at the end of the previous quarter. Our calculations also showed that PPG 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.
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater 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. 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. Now we’re going to analyze the latest hedge fund action regarding PPG Industries, Inc. (NYSE:PPG).
How are hedge funds trading PPG Industries, Inc. (NYSE:PPG)?
At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in PPG over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the largest position in PPG Industries, Inc. (NYSE:PPG). Citadel Investment Group has a $176.3 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $68.7 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that are bullish include Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Joel Greenblatt’s Gotham Asset Management. In terms of the portfolio weights assigned to each position Alight Capital allocated the biggest weight to PPG Industries, Inc. (NYSE:PPG), around 1.29% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 0.73 percent of its 13F equity portfolio to PPG.
As industrywide interest jumped, key money managers have been driving this bullishness. Gotham Asset Management, managed by Joel Greenblatt, created the most valuable position in PPG Industries, Inc. (NYSE:PPG). Gotham Asset Management had $25 million invested in the company at the end of the quarter. Alexander Mitchell’s Scopus Asset Management also initiated a $20 million position during the quarter. The following funds were also among the new PPG investors: Ray Dalio’s Bridgewater Associates, Louis Bacon’s Moore Global Investments, and Sara Nainzadeh’s Centenus Global Management.
Let’s check out hedge fund activity in other stocks similar to PPG Industries, Inc. (NYSE:PPG). These stocks are LyondellBasell Industries NV (NYSE:LYB), Johnson Controls International plc (NYSE:JCI), Electronic Arts Inc. (NASDAQ:EA), and Hilton Worldwide Holdings Inc (NYSE:HLT). All of these stocks’ market caps match PPG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LYB | 40 | 377389 | 6 |
| JCI | 37 | 1119829 | 13 |
| EA | 68 | 2359890 | -2 |
| HLT | 57 | 4450016 | 4 |
| Average | 50.5 | 2076781 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.5 hedge funds with bullish positions and the average amount invested in these stocks was $2077 million. That figure was $465 million in PPG’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Johnson Controls International plc (NYSE:JCI) is the least popular one with only 37 bullish hedge fund positions. Compared to these stocks PPG Industries, Inc. (NYSE:PPG) is even less popular than JCI. Hedge funds dodged a bullet by taking a bearish stance towards PPG. Our calculations showed that the top 20 most popular hedge fund stocks 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 but managed to beat the market by 3.1 percentage points. Unfortunately PPG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PPG investors were disappointed as the stock returned -27% 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
