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Hedge Funds Are Betting On Pentair plc (PNR)

Reymerlyn Martin

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Pentair plc (NYSE:PNR) in this article.

Is Pentair plc (NYSE:PNR) a buy here? Investors who are in the know are becoming hopeful. The number of long hedge fund bets inched up by 1 recently. Our calculations also showed that PNR isn't among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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.

TRIAN PARTNERS

Let's take a glance at the key hedge fund action encompassing Pentair plc (NYSE:PNR).

How are hedge funds trading Pentair plc (NYSE:PNR)?

Heading into the fourth quarter of 2018, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PNR over the last 13 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PNR_dec2018

The largest stake in Pentair plc (NYSE:PNR) was held by Trian Partners, which reported holding $521.8 million worth of stock at the end of September. It was followed by Impax Asset Management with a $84.4 million position. Other investors bullish on the company included Gotham Asset Management, Renaissance Technologies, and Two Sigma Advisors.

As industrywide interest jumped, key money managers were leading the bulls' herd. Impax Asset Management, managed by Ian Simm, initiated the most outsized position in Pentair plc (NYSE:PNR). Impax Asset Management had $84.4 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $4.4 million position during the quarter. The other funds with brand new PNR positions are Bruce Kovner's Caxton Associates LP, Matthew Tewksbury's Stevens Capital Management, and Roger Ibbotson's Zebra Capital Management.

Let's also examine hedge fund activity in other stocks similar to Pentair plc (NYSE:PNR). We will take a look at Autoliv Inc. (NYSE:ALV), The Carlyle Group LP (NASDAQ:CG), Harley-Davidson, Inc. (NYSE:HOG), and World Wrestling Entertainment, Inc. (NYSE:WWE). This group of stocks' market values match PNR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALV,13,556381,-1 CG,10,123719,0 HOG,20,154494,3 WWE,24,782472,0 Average,16.75,404267,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $404 million. That figure was $711 million in PNR's case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand The Carlyle Group LP (NASDAQ:CG) is the least popular one with only 10 bullish hedge fund positions. Pentair plc (NYSE:PNR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard WWE might be a better candidate to consider a long position.

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

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