Hedge funds and other investment firms run by legendary investors like Israel Englander and Ray Dalio are entrusted to manage billions of dollars of accredited investors’ money because they are without peer in the resources they use to identify the best investments for their chosen investment horizon. Moreover, they are more willing to invest a greater amount of their resources in small-cap stocks than big brokerage houses, and this is often where they generate their outperformance, which is why we pay particular attention to their best ideas in this space.
PPG Industries, Inc. (NYSE:PPG) investors should be aware of an increase in hedge fund sentiment in recent months. PPG was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. There were 19 hedge funds in our database with PPG holdings at the end of the previous quarter. Our calculations also showed that PPG isn’t among the 30 most popular stocks among hedge funds.
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.
We’re going to review the new hedge fund action regarding PPG Industries, Inc. (NYSE:PPG).
How are hedge funds trading PPG Industries, Inc. (NYSE:PPG)?
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards PPG over the last 13 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Trian Partners was the largest shareholder of PPG Industries, Inc. (NYSE:PPG), with a stake worth $452.2 million reported as of the end of September. Trailing Trian Partners was Two Sigma Advisors, which amassed a stake valued at $70.1 million. Adage Capital Management, Sirios Capital Management, and Point72 Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, specific money managers have been driving this bullishness. Trian Partners, managed by Nelson Peltz, initiated the biggest position in PPG Industries, Inc. (NYSE:PPG). Trian Partners had $452.2 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $7.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Sara Nainzadeh’s Centenus Global Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PPG Industries, Inc. (NYSE:PPG) but similarly valued. These stocks are DXC Technology Company (NYSE:DXC), IQVIA Holdings, Inc. (NYSE:IQV), Discover Financial Services (NYSE:DFS), and Energy Transfer Partners LP (NYSE:ETP). This group of stocks’ market values are similar to PPG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DXC | 50 | 2485422 | -6 |
| IQV | 48 | 4905001 | 2 |
| DFS | 32 | 1061634 | 0 |
| ETP | 13 | 368219 | 0 |
| Average | 35.75 | 2205069 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.21 billion. That figure was $655 million in PPG’s case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Energy Transfer Partners LP (NYSE:ETP) is the least popular one with only 13 bullish hedge fund positions. PPG Industries, Inc. (NYSE:PPG) 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 DXC might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
