Were Hedge Funds Right About Illinois Tool Works Inc. (ITW)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. Hedge funds’ consensus stock picks performed spectacularly over the last 3 years, but 2022 hasn’t been kind to hedge funds. In this article we look at how hedge funds traded Illinois Tool Works Inc. (NYSE:ITW) and determine whether the smart money was really smart about this stock.

Illinois Tool Works Inc. (NYSE:ITW) investors should pay attention to a decrease in hedge fund interest in recent months. Illinois Tool Works Inc. (NYSE:ITW) was in 39 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 45. Our calculations also showed that ITW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to check out the key hedge fund action surrounding Illinois Tool Works Inc. (NYSE:ITW).

Tom Gayner of Markel Gayner Asset Management

Do Hedge Funds Think ITW Is A Good Stock To Buy Now?

At the end of September, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in ITW a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, AQR Capital Management held the most valuable stake in Illinois Tool Works Inc. (NYSE:ITW), which was worth $191.7 million at the end of the third quarter. On the second spot was Markel Gayner Asset Management which amassed $67.7 million worth of shares. Millennium Management, Citadel Investment Group, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 1.62% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to ITW.

Seeing as Illinois Tool Works Inc. (NYSE:ITW) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedgies who were dropping their positions entirely heading into Q4. Intriguingly, Ray Dalio’s Bridgewater Associates dumped the largest stake of the 750 funds watched by Insider Monkey, totaling close to $19.6 million in stock. Phill Gross and Robert Atchinson’s fund, Adage Capital Management, also said goodbye to its stock, about $18 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 6 funds heading into Q4.

Let’s now review hedge fund activity in other stocks similar to Illinois Tool Works Inc. (NYSE:ITW). We will take a look at Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Intercontinental Exchange Inc (NYSE:ICE), Bank of Montreal (NYSE:BMO), Aon plc (NYSE:AON), Colgate-Palmolive Company (NYSE:CL), Illumina, Inc. (NASDAQ:ILMN), and Waste Management, Inc. (NYSE:WM). This group of stocks’ market values match ITW’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.3 hedge funds with bullish positions and the average amount invested in these stocks was $2758 million. That figure was $422 million in ITW’s case. Illumina, Inc. (NASDAQ:ILMN) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 12 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITW is 56.4. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. A small number of hedge funds were also right about betting on ITW as the stock returned 13.8% since the end of the third quarter (through 1/31) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.