Were Hedge Funds Right About Loading Up On Pentair plc (PNR)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Pentair plc (NYSE:PNR) changed recently.

Is Pentair plc (NYSE:PNR) an outstanding investment right now? Investors who are in the know were getting more bullish. The number of long hedge fund positions improved by 5 recently. Pentair plc (NYSE:PNR) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PNR 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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. Keeping this in mind we’re going to go over the key hedge fund action encompassing Pentair plc (NYSE:PNR).

How have hedgies been trading Pentair plc (NYSE:PNR)?

At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the first quarter of 2020. By comparison, 21 hedge funds held shares or bullish call options in PNR a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Impax Asset Management, managed by Ian Simm, holds the most valuable position in Pentair plc (NYSE:PNR). Impax Asset Management has a $319.9 million position in the stock, comprising 3.3% of its 13F portfolio. The second most bullish fund manager is Balyasny Asset Management, led by Dmitry Balyasny, holding a $35.6 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions consist of Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.28% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 2.37 percent of its 13F equity portfolio to PNR.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Fairpointe Capital, managed by Thyra Zerhusen, created the biggest position in Pentair plc (NYSE:PNR). Fairpointe Capital had $16.3 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also made a $6 million investment in the stock during the quarter. The following funds were also among the new PNR investors: Andrew Byington’s Appian Way Asset Management, Michael Gelband’s ExodusPoint Capital, and Ray Dalio’s Bridgewater Associates.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Pentair plc (NYSE:PNR) but similarly valued. These stocks are Bruker Corporation (NASDAQ:BRKR), TIM Participacoes SA (NYSE:TSU), Anaplan, Inc. (NYSE:PLAN), MKS Instruments, Inc. (NASDAQ:MKSI), PRA Health Sciences Inc (NASDAQ:PRAH), Herbalife Nutrition Ltd. (NYSE:HLF), and LPL Financial Holdings Inc (NASDAQ:LPLA). This group of stocks’ market caps resemble PNR’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $998 million. That figure was $528 million in PNR’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 15 bullish hedge fund positions. Pentair plc (NYSE:PNR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNR is 67.9. 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 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on PNR as the stock returned 32.1% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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