We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Ingredion Inc (NYSE:INGR).
Is Ingredion Inc (NYSE:INGR) going to take off soon? Prominent investors are reducing their bets on the stock. The number of long hedge fund positions dropped by 6 in recent months. Our calculations also showed that INGR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). INGR was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with INGR holdings at the end of the previous quarter.
To most stock holders, hedge funds are assumed to be unimportant, old financial tools of the past. While there are greater than 8000 funds trading at the moment, Our experts look at the leaders of this club, about 850 funds. Most estimates calculate that this group of people control bulk of the hedge fund industry’s total asset base, and by tailing their highest performing equity investments, Insider Monkey has identified many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Roger Ibbotson of Zebra Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the latest hedge fund action regarding Ingredion Inc (NYSE:INGR).
What have hedge funds been doing with Ingredion Inc (NYSE:INGR)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in INGR over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Ingredion Inc (NYSE:INGR), which was worth $173.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $37.9 million worth of shares. D E Shaw, GLG Partners, and Renaissance Technologies 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 Fondren Management allocated the biggest weight to Ingredion Inc (NYSE:INGR), around 0.38% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.3 percent of its 13F equity portfolio to INGR.
Judging by the fact that Ingredion Inc (NYSE:INGR) has witnessed a decline in interest from the smart money, logic holds that there is a sect of hedge funds who were dropping their positions entirely heading into Q4. It’s worth mentioning that Israel Englander’s Millennium Management sold off the biggest position of all the hedgies tracked by Insider Monkey, valued at an estimated $32.2 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $25.7 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 6 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Ingredion Inc (NYSE:INGR) but similarly valued. These stocks are EQM Midstream Partners LP (NYSE:EQM), Park Hotels & Resorts Inc. (NYSE:PK), BOK Financial Corporation (NASDAQ:BOKF), and Hexcel Corporation (NYSE:HXL). This group of stocks’ market valuations resemble INGR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EQM | 11 | 40191 | -1 |
| PK | 13 | 353031 | -8 |
| BOKF | 15 | 205931 | -2 |
| HXL | 30 | 103264 | 3 |
| Average | 17.25 | 175604 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $176 million. That figure was $304 million in INGR’s case. Hexcel Corporation (NYSE:HXL) is the most popular stock in this table. On the other hand EQM Midstream Partners LP (NYSE:EQM) is the least popular one with only 11 bullish hedge fund positions. Ingredion Inc (NYSE:INGR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately INGR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on INGR were disappointed as the stock returned -24.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
