U.S. markets closed

Hedge Fund Consensus Stocks vs. Parker-Hannifin Corporation (PH) In 2019

Debasis Saha

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Parker-Hannifin Corporation (NYSE:PH).

Parker-Hannifin Corporation (NYSE:PH) was in 25 hedge funds' portfolios at the end of September. PH investors should be aware of a decrease in enthusiasm from smart money lately. There were 26 hedge funds in our database with PH holdings at the end of the previous quarter. Our calculations also showed that PH 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' 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_758429" align="alignnone" width="600"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

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. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding Parker-Hannifin Corporation (NYSE:PH).

How are hedge funds trading Parker-Hannifin Corporation (NYSE:PH)?

Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PH over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PH A Good Stock To Buy?

The largest stake in Parker-Hannifin Corporation (NYSE:PH) was held by Diamond Hill Capital, which reported holding $289.9 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $86.9 million position. Other investors bullish on the company included Alyeska Investment Group, AQR Capital Management, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to Parker-Hannifin Corporation (NYSE:PH), around 1.54% of its 13F portfolio. Alyeska Investment Group is also relatively very bullish on the stock, dishing out 1.22 percent of its 13F equity portfolio to PH.

Since Parker-Hannifin Corporation (NYSE:PH) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of money managers that slashed their full holdings in the third quarter. It's worth mentioning that Matthew Tewksbury's Stevens Capital Management dropped the biggest position of the "upper crust" of funds monitored by Insider Monkey, worth an estimated $7 million in call options. Alexander Mitchell's fund, Scopus Asset Management, also said goodbye to its call options, about $6.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let's now review hedge fund activity in other stocks similar to Parker-Hannifin Corporation (NYSE:PH). These stocks are Carnival Corporation (NYSE:CCL), Fortive Corporation (NYSE:FTV), Archer Daniels Midland Company (NYSE:ADM), and PPL Corporation (NYSE:PPL). This group of stocks' market caps are similar to PH's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCL,29,589089,-7 FTV,34,803239,6 ADM,21,511939,-5 PPL,24,516405,4 Average,27,605168,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $605 million. That figure was $804 million in PH's case. Fortive Corporation (NYSE:FTV) is the most popular stock in this table. On the other hand Archer Daniels Midland Company (NYSE:ADM) is the least popular one with only 21 bullish hedge fund positions. Parker-Hannifin Corporation (NYSE:PH) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on PH, though not to the same extent, as the stock returned 40.8% in 2019 and surpassed the market. 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.

Related Content