“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is Intercontinental Exchange Inc (NYSE:ICE) a good investment now? Hedge funds are becoming more confident. The number of long hedge fund bets moved up by 3 lately. Our calculations also showed that ICE isn’t among the 30 most popular stocks among hedge funds. ICE was in 36 hedge funds’ portfolios at the end of September. There were 33 hedge funds in our database with ICE positions at the end of the previous quarter.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let’s check out the latest hedge fund action regarding Intercontinental Exchange Inc (NYSE:ICE).
What have hedge funds been doing with Intercontinental Exchange Inc (NYSE:ICE)?
At Q3’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ICE over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eminence Capital was the largest shareholder of Intercontinental Exchange Inc (NYSE:ICE), with a stake worth $363.3 million reported as of the end of September. Trailing Eminence Capital was Cantillon Capital Management, which amassed a stake valued at $348.3 million. Cantillon Capital Management, Iridian Asset Management, and Senator Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in Intercontinental Exchange Inc (NYSE:ICE). Citadel Investment Group had $89.2 million invested in the company at the end of the quarter. George Hall’s Clinton Group also initiated a $4.9 million position during the quarter. The following funds were also among the new ICE investors: Glenn Russell Dubin’s Highbridge Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Jeffrey Talpins’s Element Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Intercontinental Exchange Inc (NYSE:ICE) but similarly valued. These stocks are Prologis Inc (NYSE:PLD), The Sherwin-Williams Company (NYSE:SHW), Koninklijke Philips NV (NYSE:PHG), and Prudential Financial Inc (NYSE:PRU). This group of stocks’ market caps match ICE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLD | 25 | 666044 | -3 |
| SHW | 38 | 1412679 | 3 |
| PHG | 15 | 456151 | 1 |
| PRU | 33 | 1057477 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $898 million. That figure was $2.850 billion in ICE’s case. The Sherwin-Williams Company (NYSE:SHW) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 15 bullish hedge fund positions. Intercontinental Exchange Inc (NYSE:ICE) 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. In this regard SHW might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
