The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Textron Inc. (NYSE:TXT) and find out how it is affected by hedge funds’ moves.
Textron Inc. (NYSE:TXT) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that TXT isn’t among the 30 most popular stocks among hedge funds (view the video below).
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the key hedge fund action surrounding Textron Inc. (NYSE:TXT).
Hedge fund activity in Textron Inc. (NYSE:TXT)
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in TXT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the number one position in Textron Inc. (NYSE:TXT), worth close to $135.8 million, corresponding to 1% of its total 13F portfolio. Coming in second is D E Shaw, managed by D. E. Shaw, which holds a $105.6 million position; 0.1% of its 13F portfolio is allocated to the company. Other professional money managers that hold long positions comprise Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Phill Gross and Robert Atchinson’s Adage Capital Management.
Seeing as Textron Inc. (NYSE:TXT) has faced declining sentiment from hedge fund managers, we can see that there is a sect of fund managers that elected to cut their positions entirely in the second quarter. At the top of the heap, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital sold off the largest investment of the 750 funds followed by Insider Monkey, valued at an estimated $12.1 million in stock. David Costen Haley’s fund, HBK Investments, also sold off its stock, about $10.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the second quarter.
Let’s also examine hedge fund activity in other stocks similar to Textron Inc. (NYSE:TXT). These stocks are The Liberty SiriusXM Group (NASDAQ:LSXMA), InterContinental Hotels Group PLC (NYSE:IHG), Campbell Soup Company (NYSE:CPB), and W.R. Berkley Corporation (NYSE:WRB). This group of stocks’ market valuations are closest to TXT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LSXMA | 34 | 1328002 | -7 |
| IHG | 4 | 21692 | -1 |
| CPB | 26 | 953095 | -2 |
| WRB | 23 | 319842 | 5 |
| Average | 21.75 | 655658 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $656 million. That figure was $618 million in TXT’s case. The Liberty SiriusXM Group (NASDAQ:LSXMA) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 4 bullish hedge fund positions. Textron Inc. (NYSE:TXT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TXT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TXT were disappointed as the stock returned -7.7% during the third 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
