Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Hillenbrand, Inc. (NYSE:HI).
Hillenbrand, Inc. (NYSE:HI) investors should pay attention to an increase in hedge fund sentiment in recent months. HI was in 15 hedge funds’ portfolios at the end of the third quarter of 2016. There were 12 hedge funds in our database with HI positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Pebblebrook Hotel Trust (NYSE:PEB), Controladora Vuela Co Avcn SA CV (ADR) (NYSE:VLRS), and Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) to gather more data points.
Follow Hillenbrand Inc. (NYSE:HI)
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Hedge fund activity in Hillenbrand, Inc. (NYSE:HI)
Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a rise of 25% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in HI heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Diamond Hill Capital, led by Ric Dillon, holds the largest position in Hillenbrand, Inc. (NYSE:HI). Diamond Hill Capital has a $9.1 million position in the stock. On Diamond Hill Capital’s heels is Israel Englander’s Millennium Management holding a $7.3 million position. Other members of the smart money that hold long positions contain Mark Wolfson and Jamie Alexander’s Jasper Ridge Partners, D. E. Shaw’s D E Shaw and Jim Simons’ Renaissance Technologies. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As industrywide interest jumped, some big names were breaking ground themselves. Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in Hillenbrand, Inc. (NYSE:HI). Arrowstreet Capital had $1.3 million invested in the company at the end of the quarter. Neil Chriss’s Hutchin Hill Capital also made a $0.9 million investment in the stock during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks similar to Hillenbrand, Inc. (NYSE:HI). These stocks are Pebblebrook Hotel Trust (NYSE:PEB), Controladora Vuela Co Avcn SA CV (ADR) (NYSE:VLRS), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), and Finisar Corporation (NASDAQ:FNSR). This group of stocks’ market valuations are similar to HI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PEB | 7 | 13891 | 0 |
| VLRS | 14 | 174810 | 3 |
| IRWD | 21 | 482398 | 3 |
| FNSR | 22 | 417786 | 1 |
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 $272 million. That figure was $49 million in HI’s case. Finisar Corporation (NASDAQ:FNSR) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 7 bullish hedge fund positions. Hillenbrand, Inc. (NYSE:HI) 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. In this regard FNSR might be a better candidate to consider taking a long position in.
Disclosure: None
