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 821 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 March 31st, a week after the market trough. In this article we look at what those investors think of Allegion plc (NYSE:ALLE).
Is Allegion plc (NYSE:ALLE) a buy here? Investors who are in the know are in a bullish mood. The number of long hedge fund bets improved by 6 lately. Our calculations also showed that ALLE isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). ALLE was in 31 hedge funds' portfolios at the end of the first quarter of 2020. There were 25 hedge funds in our database with ALLE holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 51 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 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 stocks that are in our short portfolio.
[caption id="attachment_255014" align="aligncenter" width="400"] Clint Carlson of Carlson Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's take a look at the key hedge fund action encompassing Allegion plc (NYSE:ALLE).
How have hedgies been trading Allegion plc (NYSE:ALLE)?
At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in ALLE a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Allegion plc (NYSE:ALLE) was held by Ako Capital, which reported holding $170.6 million worth of stock at the end of September. It was followed by Intermede Investment Partners with a $74.6 million position. Other investors bullish on the company included Bristol Gate Capital Partners, Renaissance Technologies, and Carlson Capital. In terms of the portfolio weights assigned to each position Albar Capital allocated the biggest weight to Allegion plc (NYSE:ALLE), around 5.53% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, earmarking 4.88 percent of its 13F equity portfolio to ALLE.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Albar Capital, managed by Javier Velazquez, initiated the most outsized position in Allegion plc (NYSE:ALLE). Albar Capital had $5.8 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $2.7 million position during the quarter. The following funds were also among the new ALLE investors: Dmitry Balyasny's Balyasny Asset Management, Jinghua Yan's TwinBeech Capital, and Paul Tudor Jones's Tudor Investment Corp.
Let's now take a look at hedge fund activity in other stocks similar to Allegion plc (NYSE:ALLE). These stocks are Pinnacle West Capital Corporation (NYSE:PNW), Cheniere Energy, Inc. (NYSE:LNG), Molina Healthcare, Inc. (NYSE:MOH), and Avery Dennison Corporation (NYSE:AVY). This group of stocks' market values are closest to ALLE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNW,25,923395,0 LNG,39,1880676,-4 MOH,32,1223084,-3 AVY,18,82899,-4 Average,28.5,1027514,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1028 million. That figure was $404 million in ALLE's case. Cheniere Energy, Inc. (NYSE:LNG) is the most popular stock in this table. On the other hand Avery Dennison Corporation (NYSE:AVY) is the least popular one with only 18 bullish hedge fund positions. Allegion plc (NYSE:ALLE) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately ALLE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ALLE were disappointed as the stock returned 8.3% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.