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With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Carrier Global Corporation (NYSE:CARR).
Carrier Global Corporation (NYSE:CARR) has seen a decrease in hedge fund interest recently. Carrier Global Corporation (NYSE:CARR) was in 46 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 52. There were 51 hedge funds in our database with CARR positions at the end of the first quarter. Our calculations also showed that CARR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 79 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.
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Do Hedge Funds Think CARR Is A Good Stock To Buy Now?
At second quarter's end, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the first quarter of 2020. By comparison, 44 hedge funds held shares or bullish call options in CARR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the most valuable position in Carrier Global Corporation (NYSE:CARR). Diamond Hill Capital has a $275.1 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Gates Capital Management, managed by Jeffrey Gates, which holds a $182 million position; 5.2% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Suzi Nutton (CEO)'s Lansdowne Partners, Cliff Asness's AQR Capital Management and Phill Gross and Robert Atchinson's Adage Capital Management. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Carrier Global Corporation (NYSE:CARR), around 7.01% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, dishing out 5.25 percent of its 13F equity portfolio to CARR.
Due to the fact that Carrier Global Corporation (NYSE:CARR) has faced falling interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of hedgies that decided to sell off their entire stakes heading into Q3. It's worth mentioning that John Smith Clark's Southpoint Capital Advisors sold off the largest investment of all the hedgies followed by Insider Monkey, worth an estimated $438 million in stock. Patrick Degorce's fund, Theleme Partners, also cut its stock, about $122.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Carrier Global Corporation (NYSE:CARR) but similarly valued. We will take a look at Synopsys, Inc. (NASDAQ:SNPS), Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), DexCom, Inc. (NASDAQ:DXCM), Kinder Morgan Inc (NYSE:KMI), DuPont de Nemours Inc (NYSE:DD), and Electronic Arts Inc. (NASDAQ:EA). This group of stocks' market valuations resemble CARR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNPS,41,2057258,7 ERIC,19,228837,0 BBVA,9,274525,2 DXCM,49,1634192,-7 KMI,38,1032764,0 DD,57,1653192,8 EA,56,2022602,12 Average,38.4,1271910,3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.4 hedge funds with bullish positions and the average amount invested in these stocks was $1272 million. That figure was $1854 million in CARR's case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 9 bullish hedge fund positions. Carrier Global Corporation (NYSE:CARR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CARR is 65.1. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on CARR as the stock returned 7.9% since the end of Q2 (through 10/1) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.