It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Resideo Technologies, Inc. (NYSE:REZI).
Resideo Technologies, Inc. (NYSE:REZI) investors should pay attention to an increase in support from the world’s most elite money managers of late. REZI was in 31 hedge funds’ portfolios at the end of September. There were 29 hedge funds in our database with REZI positions at the end of the previous quarter. Our calculations also showed that REZI 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.
If you’d ask most investors, hedge funds are assumed to be unimportant, outdated financial tools of years past. While there are over 8000 funds trading at the moment, Our experts look at the crème de la crème of this club, approximately 750 funds. These investment experts manage bulk of the hedge fund industry’s total capital, and by tailing their unrivaled equity investments, Insider Monkey has figured out a number of investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Kevin Oram of Praesidium Investment Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the recent hedge fund action regarding Resideo Technologies, Inc. (NYSE:REZI).
How have hedgies been trading Resideo Technologies, Inc. (NYSE:REZI)?
Heading into the fourth quarter of 2019, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards REZI over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
More specifically, Praesidium Investment Management was the largest shareholder of Resideo Technologies, Inc. (NYSE:REZI), with a stake worth $87.6 million reported as of the end of September. Trailing Praesidium Investment Management was Freshford Capital Management, which amassed a stake valued at $66.6 million. Carlson Capital, Rubric Capital Management, and GAMCO Investors 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 Freshford Capital Management allocated the biggest weight to Resideo Technologies, Inc. (NYSE:REZI), around 12.18% of its portfolio. Praesidium Investment Management is also relatively very bullish on the stock, dishing out 5.74 percent of its 13F equity portfolio to REZI.
With a general bullishness amongst the heavyweights, some big names have jumped into Resideo Technologies, Inc. (NYSE:REZI) headfirst. Rubric Capital Management, managed by David Rosen, assembled the most outsized position in Resideo Technologies, Inc. (NYSE:REZI). Rubric Capital Management had $25.8 million invested in the company at the end of the quarter. Bernard Selz’s Selz Capital also initiated a $6.1 million position during the quarter. The other funds with brand new REZI positions are Brandon Haley’s Holocene Advisors, Michael Gelband’s ExodusPoint Capital, and Charles Paquelet’s Skylands Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Resideo Technologies, Inc. (NYSE:REZI) but similarly valued. These stocks are NetScout Systems, Inc. (NASDAQ:NTCT), Essential Properties Realty Trust, Inc. (NYSE:EPRT), Northwest Bancshares, Inc. (NASDAQ:NWBI), and ForeScout Technologies, Inc. (NASDAQ:FSCT). This group of stocks’ market valuations are closest to REZI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTCT | 12 | 100240 | -2 |
| EPRT | 15 | 110452 | 0 |
| NWBI | 18 | 67833 | 5 |
| FSCT | 19 | 281431 | 1 |
| Average | 16 | 139989 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $340 million in REZI’s case. ForeScout Technologies, Inc. (NASDAQ:FSCT) is the most popular stock in this table. On the other hand NetScout Systems, Inc. (NASDAQ:NTCT) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Resideo Technologies, Inc. (NYSE:REZI) 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 REZI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on REZI were disappointed as the stock returned -31.8% 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.
