How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Intercontinental Exchange Inc (NYSE:ICE).
Intercontinental Exchange Inc (NYSE:ICE) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistics is 61. ICE has seen a decrease in hedge fund sentiment of late. There were 61 hedge funds in our database with ICE positions at the end of the first quarter. Our calculations also showed that ICE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a peek at the new hedge fund action regarding Intercontinental Exchange Inc (NYSE:ICE).
How are hedge funds trading Intercontinental Exchange Inc (NYSE:ICE)?
At the end of the second quarter, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of -2% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in ICE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D. E. Shaw’s D E Shaw has the number one position in Intercontinental Exchange Inc (NYSE:ICE), worth close to $481.9 million, amounting to 0.6% of its total 13F portfolio. The second most bullish fund manager is Cantillon Capital Management, led by William von Mueffling, holding a $410.5 million position; 3.6% of its 13F portfolio is allocated to the company. Other peers that hold long positions encompass Panayotis Takis Sparaggis’s Alkeon Capital Management, David Cohen and Harold Levy’s Iridian Asset Management and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Truvvo Partners allocated the biggest weight to Intercontinental Exchange Inc (NYSE:ICE), around 26.64% of its 13F portfolio. Crescent Park Management is also relatively very bullish on the stock, dishing out 6.3 percent of its 13F equity portfolio to ICE.
Because Intercontinental Exchange Inc (NYSE:ICE) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of fund managers that decided to sell off their entire stakes in the second quarter. Interestingly, Alex Duran and Scott Hendrickson’s Permian Investment Partners dropped the biggest position of all the hedgies watched by Insider Monkey, comprising close to $90.8 million in stock. Ricky Sandler’s fund, Eminence Capital, also sold off its stock, about $81.1 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 1 funds in the second quarter.
Let’s check out hedge fund activity in other stocks similar to Intercontinental Exchange Inc (NYSE:ICE). We will take a look at The Bank of Nova Scotia (NYSE:BNS), Newmont Corporation (NYSE:NEM), Deere & Company (NYSE:DE), Mercadolibre Inc (NASDAQ:MELI), Kimberly Clark Corporation (NYSE:KMB), ABB Ltd (NYSE:ABB), and Spotify Technology S.A. (NYSE:SPOT). This group of stocks’ market caps are similar to ICE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BNS | 13 | 252173 | 1 |
| NEM | 55 | 2418239 | 12 |
| DE | 32 | 839882 | -12 |
| MELI | 60 | 4427510 | 0 |
| KMB | 37 | 1173794 | -9 |
| ABB | 10 | 346451 | 0 |
| SPOT | 36 | 1882209 | -4 |
| Average | 34.7 | 1620037 | -1.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.7 hedge funds with bullish positions and the average amount invested in these stocks was $1620 million. That figure was $2755 million in ICE’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 10 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. Our overall hedge fund sentiment score for ICE is 83.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately ICE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ICE were disappointed as the stock returned 10.9% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Follow Intercontinentalexchange Inc (NYSE:ICE)
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Disclosure: None. This article was originally published at Insider Monkey.
