Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and a 20% drop in stock prices. Things completely reversed in 2019 and stock indices hit record highs. Recent hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards International Flavors & Fragrances Inc (NYSE:IFF) to find out whether it was one of their high conviction long-term ideas.
International Flavors & Fragrances Inc (NYSE:IFF) has seen an increase in enthusiasm from smart money in recent months. IFF was in 19 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with IFF holdings at the end of the previous quarter. Our calculations also showed that IFF 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Phill Gross of Adage Capital 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. Let’s take a glance at the key hedge fund action regarding International Flavors & Fragrances Inc (NYSE:IFF).
What does smart money think about International Flavors & Fragrances Inc (NYSE:IFF)?
At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IFF over the last 17 quarters. 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 International Flavors & Fragrances Inc (NYSE:IFF) was held by GAMCO Investors, which reported holding $65.8 million worth of stock at the end of September. It was followed by Sirios Capital Management with a $31.7 million position. Other investors bullish on the company included Citadel Investment Group, Echo Street Capital Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Sirios Capital Management allocated the biggest weight to International Flavors & Fragrances Inc (NYSE:IFF), around 2.09% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, earmarking 1.59 percent of its 13F equity portfolio to IFF.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, created the biggest position in International Flavors & Fragrances Inc (NYSE:IFF). Balyasny Asset Management had $8.4 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Karim Abbadi and Edward McBride’s Centiva Capital, and Israel Englander’s Millennium Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as International Flavors & Fragrances Inc (NYSE:IFF) but similarly valued. These stocks are SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), WellCare Health Plans, Inc. (NYSE:WCG), Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR), and Ally Financial Inc (NYSE:ALLY). This group of stocks’ market values are similar to IFF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SSNC | 45 | 1483434 | 4 |
| WCG | 41 | 1791970 | -5 |
| EBR | 5 | 21001 | -1 |
| ALLY | 51 | 2112182 | 8 |
| Average | 35.5 | 1352147 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1352 million. That figure was $203 million in IFF’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Centrais Eletricas Brasileiras S.A. – Eletrobras (NYSE:EBR) is the least popular one with only 5 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 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. A small number of hedge funds were also right about betting on IFF as the stock returned 15.1% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
