Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Is Honeywell International Inc. (NYSE:HON) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Honeywell International Inc. (NYSE:HON) was in 55 hedge funds’ portfolios at the end of December. HON investors should be aware of a decrease in hedge fund interest lately. There were 58 hedge funds in our database with HON holdings at the end of the previous quarter. Our calculations also showed that HON 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.
To most stock holders, hedge funds are viewed as underperforming, outdated financial vehicles of the past. While there are over 8000 funds with their doors open at the moment, Our researchers choose to focus on the elite of this club, approximately 850 funds. It is estimated that this group of investors watch over the majority of the smart money’s total asset base, and by following their unrivaled equity investments, Insider Monkey has determined a number of investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points annually 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 .
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we’re going to analyze the latest hedge fund action encompassing Honeywell International Inc. (NYSE:HON).
How have hedgies been trading Honeywell International Inc. (NYSE:HON)?
At Q4’s end, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the third quarter of 2019. On the other hand, there were a total of 57 hedge funds with a bullish position in HON a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, D. E. Shaw’s D E Shaw has the biggest position in Honeywell International Inc. (NYSE:HON), worth close to $323.1 million, amounting to 0.4% of its total 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $286.7 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish include John Overdeck and David Siegel’s Two Sigma Advisors, Israel Englander’s Millennium Management and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Pittencrieff Partners – Gabalex Capital allocated the biggest weight to Honeywell International Inc. (NYSE:HON), around 10.44% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, designating 4.07 percent of its 13F equity portfolio to HON.
Seeing as Honeywell International Inc. (NYSE:HON) has experienced falling interest from the entirety of the hedge funds we track, we can see that there were a few money managers that decided to sell off their positions entirely in the third quarter. Intriguingly, Jonathan Barrett and Paul Segal’s Luminus Management cut the biggest investment of all the hedgies monitored by Insider Monkey, comprising close to $30.4 million in stock, and Sara Nainzadeh’s Centenus Global Management was right behind this move, as the fund dropped about $7.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 3 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). We will take a look at Eli Lilly and Company (NYSE:LLY), Sanofi (NYSE:SNY), Broadcom Inc (NASDAQ:AVGO), and Union Pacific Corporation (NYSE:UNP). This group of stocks’ market caps resemble HON’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LLY | 43 | 1493296 | -1 |
| SNY | 31 | 1113585 | 3 |
| AVGO | 61 | 2513808 | 2 |
| UNP | 65 | 5313051 | -4 |
| Average | 50 | 2608435 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $2608 million. That figure was $2282 million in HON’s case. Union Pacific Corporation (NYSE:UNP) is the most popular stock in this table. On the other hand Sanofi (NYSE:SNY) is the least popular one with only 31 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the most popular stock in this group but hedge fund interest is still above 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 12.9% in 2020 through March 9th but still beat the market by 1.9 percentage points. Hedge funds were also right about betting on HON, though not to the same extent, as the stock returned -13.2% during the first two months of 2020 (through March 9th) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
