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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Allegion plc (NYSE:ALLE) based on those filings.
Allegion plc (NYSE:ALLE) has experienced a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that ALLE 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Jim Simons of Renaissance Technologies
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. With all of this in mind we’re going to take a glance at the recent hedge fund action surrounding Allegion plc (NYSE:ALLE).
How are hedge funds trading Allegion plc (NYSE:ALLE)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in ALLE 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.
The largest stake in Allegion plc (NYSE:ALLE) was held by Ako Capital, which reported holding $244.3 million worth of stock at the end of September. It was followed by Intermede Investment Partners with a $87.9 million position. Other investors bullish on the company included Bristol Gate Capital Partners, Renaissance Technologies, and Carlson Capital. In terms of the portfolio weights assigned to each position Ako Capital allocated the biggest weight to Allegion plc (NYSE:ALLE), around 5.26% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.54 percent of its 13F equity portfolio to ALLE.
Since Allegion plc (NYSE:ALLE) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there is a sect of money managers that slashed their entire stakes last quarter. Intriguingly, Nicolai Tangen’s Ako Capital dropped the largest position of the 750 funds followed by Insider Monkey, valued at close to $194.8 million in stock. David Blood and Al Gore’s fund, Generation Investment Management, also cut its stock, about $152.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Allegion plc (NYSE:ALLE) but similarly valued. These stocks are Chewy, Inc. (NYSE:CHWY), Alleghany Corporation (NYSE:Y), Teradyne, Inc. (NYSE:TER), and Globe Life Inc. (NYSE:GL). This group of stocks’ market caps are closest to ALLE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHWY | 35 | 601434 | 10 |
| Y | 24 | 384460 | -4 |
| TER | 33 | 1144237 | -1 |
| GL | 23 | 861493 | 2 |
| Average | 28.75 | 747906 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $503 million in ALLE’s case. Chewy, Inc. (NYSE:CHWY) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 23 bullish hedge fund positions. Allegion plc (NYSE:ALLE) is not the least popular stock in this group but hedge fund interest is still below average. 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 still beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on ALLE as the stock returned -21.3% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
