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Did The Smart Money Get Trane Technologies plc (TT) Right?

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Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren't certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Trane Technologies plc (NYSE:TT) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is Trane Technologies plc (NYSE:TT) undervalued? The smart money was taking an optimistic view. The number of long hedge fund bets moved up by 2 recently. Trane Technologies plc (NYSE:TT) was in 39 hedge funds' portfolios at the end of September. The all time high for this statistic is 40. Our calculations also showed that TT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 37 hedge funds in our database with TT positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we're going to take a glance at the new hedge fund action encompassing Trane Technologies plc (NYSE:TT).

Ryan Tolkin, CIO of Schonfeld Strategic Advisors

Do Hedge Funds Think TT Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in TT a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Ian Simm's Impax Asset Management has the number one position in Trane Technologies plc (NYSE:TT), worth close to $289.4 million, accounting for 1.2% of its total 13F portfolio. The second largest stake is held by Generation Investment Management, led by David Blood and Al Gore, holding a $248.7 million position; the fund has 1% of its 13F portfolio invested in the stock. Other members of the smart money that hold long positions contain Cliff Asness's AQR Capital Management, Ray Dalio's Bridgewater Associates and Renaissance Technologies. In terms of the portfolio weights assigned to each position Fosse Capital Partners allocated the biggest weight to Trane Technologies plc (NYSE:TT), around 24.13% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 1.68 percent of its 13F equity portfolio to TT.

Consequently, key money managers were leading the bulls' herd. Renaissance Technologies, assembled the largest position in Trane Technologies plc (NYSE:TT). Renaissance Technologies had $56.6 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also made a $6.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser's Magnetar Capital, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Mika Toikka's AlphaCrest Capital Management.

Let's check out hedge fund activity in other stocks similar to Trane Technologies plc (NYSE:TT). These stocks are Digital Realty Trust, Inc. (NYSE:DLR), Walgreens Boots Alliance Inc (NASDAQ:WBA), Pioneer Natural Resources Company (NYSE:PXD), American Electric Power Company, Inc. (NASDAQ:AEP), Prudential Financial Inc (NYSE:PRU), Koninklijke Philips NV (NYSE:PHG), and Paychex, Inc. (NASDAQ:PAYX). This group of stocks' market valuations match TT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DLR,28,253530,-2 WBA,37,850173,-4 PXD,48,958649,3 AEP,36,751595,7 PRU,33,460021,5 PHG,11,79466,1 PAYX,34,1115089,5 Average,32.4,638360,2.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $1148 million in TT's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 11 bullish hedge fund positions. Trane Technologies plc (NYSE:TT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TT is 74.1. 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 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on TT as the stock returned 0.6% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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