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How Did Allegion plc (ALLE) Compare Against Top Hedge Fund Stocks in 2019?

Asma UL Husna

2018's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards Allegion plc (NYSE:ALLE) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

Is Allegion plc (NYSE:ALLE) worth your attention right now? Prominent investors are betting on the stock. The number of long hedge fund bets went up by 2 recently. Our calculations also showed that ALLE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). ALLE was in 26 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with ALLE holdings at the end of the previous quarter.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_758442" align="aligncenter" width="450"] Michael Platt of BlueCrest Capital Mgmt.[/caption]

Michael Platt Bluecrest Capital Management
Michael Platt Bluecrest Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's analyze the new hedge fund action regarding Allegion plc (NYSE:ALLE).

How are hedge funds trading Allegion plc (NYSE:ALLE)?

At Q3's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ALLE over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Generation Investment Management was the largest shareholder of Allegion plc (NYSE:ALLE), with a stake worth $152.5 million reported as of the end of September. Trailing Generation Investment Management was Intermede Investment Partners, which amassed a stake valued at $71.9 million. Millennium Management, Balyasny Asset Management, and Carlson 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 Intermede Investment Partners allocated the biggest weight to Allegion plc (NYSE:ALLE), around 3.99% of its 13F portfolio. Generation Investment Management is also relatively very bullish on the stock, designating 1.08 percent of its 13F equity portfolio to ALLE.

Consequently, key money managers were breaking ground themselves. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most outsized position in Allegion plc (NYSE:ALLE). Marshall Wace had $13.9 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also initiated a $13.9 million position during the quarter. The other funds with new positions in the stock are Ken Griffin's Citadel Investment Group, Michael Kharitonov and Jon David McAuliffe's Voleon Capital, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's now review hedge fund activity in other stocks similar to Allegion plc (NYSE:ALLE). These stocks are Aqua America Inc (NYSE:WTR), StoneCo Ltd. (NASDAQ:STNE), Apache Corporation (NYSE:APA), and United Rentals, Inc. (NYSE:URI). All of these stocks' market caps are similar to ALLE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WTR,33,832797,12 STNE,28,1337452,1 APA,26,692560,4 URI,54,1123521,10 Average,35.25,996583,6.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $997 million. That figure was $450 million in ALLE's case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Apache Corporation (NYSE:APA) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Allegion plc (NYSE:ALLE) is even less popular than APA. Hedge funds clearly dropped the ball on ALLE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on ALLE as the stock returned 57.9% in 2019 and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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

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