Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards IHS Markit Ltd. (NYSE:INFO).
Is IHS Markit Ltd. (NYSE:INFO) a safe investment today? Investors who are in the know are getting less bullish. The number of bullish hedge fund positions decreased by 1 recently. Our calculations also showed that INFO 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.
If you’d ask most market participants, hedge funds are assumed to be unimportant, old financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers hone in on the crème de la crème of this group, about 850 funds. These money managers orchestrate the lion’s share of all hedge funds’ total asset base, and by tracking their highest performing investments, Insider Monkey has unsheathed a number of investment strategies that have historically beaten the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Cliff Asness of AQR 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 take a glance at the key hedge fund action encompassing IHS Markit Ltd. (NYSE:INFO).
Hedge fund activity in IHS Markit Ltd. (NYSE:INFO)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in INFO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in IHS Markit Ltd. (NYSE:INFO), which was worth $215.3 million at the end of the third quarter. On the second spot was Farallon Capital which amassed $206.7 million worth of shares. Atalan Capital, Echo Street Capital Management, and Millennium Management 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 Atalan Capital allocated the biggest weight to IHS Markit Ltd. (NYSE:INFO), around 4.61% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, earmarking 4.45 percent of its 13F equity portfolio to INFO.
Since IHS Markit Ltd. (NYSE:INFO) has experienced bearish sentiment from hedge fund managers, logic holds that there were a few fund managers who sold off their positions entirely heading into Q4. It’s worth mentioning that Andrew Immerman and Jeremy Schiffman’s Palestra Capital Management sold off the biggest investment of all the hedgies watched by Insider Monkey, totaling about $94.3 million in stock. Vikas Lunia’s fund, Lunia Capital, also dumped its stock, about $11.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks similar to IHS Markit Ltd. (NYSE:INFO). We will take a look at Lululemon Athletica inc. (NASDAQ:LULU), Consolidated Edison, Inc. (NYSE:ED), Equity Residential (NYSE:EQR), and TransDigm Group Incorporated (NYSE:TDG). This group of stocks’ market valuations resemble INFO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LULU | 47 | 1133491 | -5 |
| ED | 26 | 1204354 | 2 |
| EQR | 30 | 308617 | 4 |
| TDG | 63 | 5538787 | 3 |
| Average | 41.5 | 2046312 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $2046 million. That figure was $729 million in INFO’s case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand Consolidated Edison, Inc. (NYSE:ED) is the least popular one with only 26 bullish hedge fund positions. IHS Markit Ltd. (NYSE:INFO) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately INFO wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); INFO investors were disappointed as the stock returned -20.8% 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 in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
