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How Did AMETEK, Inc. (AME) Compare Against Top Hedge Fund Stocks in 2019?

Reymerlyn Martin

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about AMETEK, Inc. (NYSE:AME)?

AMETEK, Inc. (NYSE:AME) was in 29 hedge funds' portfolios at the end of September. AME investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. There were 31 hedge funds in our database with AME holdings at the end of the previous quarter. Our calculations also showed that AME 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).

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 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 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.

[caption id="attachment_340081" align="aligncenter" width="600"] Phill Gross of Adage Capital Management[/caption]

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. Now we're going to analyze the key hedge fund action encompassing AMETEK, Inc. (NYSE:AME).

What have hedge funds been doing with AMETEK, Inc. (NYSE:AME)?

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the second quarter of 2019. On the other hand, there were a total of 33 hedge funds with a bullish position in AME a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Citadel Investment Group held the most valuable stake in AMETEK, Inc. (NYSE:AME), which was worth $304.2 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $117.8 million worth of shares. Adage Capital Management, Giverny Capital, and Polar 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 SAYA Management allocated the biggest weight to AMETEK, Inc. (NYSE:AME), around 10.69% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, setting aside 7.3 percent of its 13F equity portfolio to AME.

Because AMETEK, Inc. (NYSE:AME) has faced a decline in interest from the smart money, it's easy to see that there was a specific group of funds that decided to sell off their entire stakes heading into Q4. Interestingly, Steve Cohen's Point72 Asset Management sold off the largest position of the 750 funds watched by Insider Monkey, totaling close to $15.1 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund said goodbye to about $13.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds heading into Q4.

Let's now take a look at hedge fund activity in other stocks similar to AMETEK, Inc. (NYSE:AME). These stocks are Corteva, Inc. (NYSE:CTVA), Tencent Music Entertainment Group (NYSE:TME), Zoom Video Communications, Inc. (NASDAQ:ZM), and Wipro Limited (NYSE:WIT). This group of stocks' market values are closest to AME's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTVA,35,457542,-1 TME,15,378566,4 ZM,30,468958,-2 WIT,12,111102,-2 Average,23,354042,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $354 million. That figure was $963 million in AME's case. Corteva, Inc. (NYSE:CTVA) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 12 bullish hedge fund positions. AMETEK, Inc. (NYSE:AME) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on AME as the stock returned 48.3% in 2019 and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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