We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of December 31st, 2019. In this article we are going to take a look at smart money sentiment towards Polaris Inc. (NYSE:PII).
Polaris Inc. (NYSE:PII) investors should be aware of a decrease in hedge fund sentiment recently. PII was in 26 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with PII positions at the end of the previous quarter. Our calculations also showed that PII isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="399"] Clint Carlson of Carlson Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the fresh hedge fund action regarding Polaris Inc. (NYSE:PII).
What does smart money think about Polaris Inc. (NYSE:PII)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in PII a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, holds the most valuable position in Polaris Inc. (NYSE:PII). Arrowstreet Capital has a $84.6 million position in the stock, comprising 0.2% of its 13F portfolio. On Arrowstreet Capital's heels is Renaissance Technologies, with a $73.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism encompass Ken Griffin's Citadel Investment Group, and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Polaris Inc. (NYSE:PII), around 5.32% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, setting aside 1.68 percent of its 13F equity portfolio to PII.
Because Polaris Inc. (NYSE:PII) has experienced bearish sentiment from hedge fund managers, it's safe to say that there were a few fund managers who were dropping their full holdings in the third quarter. Interestingly, Dmitry Balyasny's Balyasny Asset Management dumped the largest position of all the hedgies watched by Insider Monkey, comprising an estimated $37.5 million in stock. Israel Englander's fund, Millennium Management, also cut its stock, about $9.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Polaris Inc. (NYSE:PII) but similarly valued. These stocks are Ingredion Inc (NYSE:INGR), EQM Midstream Partners, LP (NYSE:EQM), Park Hotels & Resorts Inc. (NYSE:PK), and BOK Financial Corporation (NASDAQ:BOKF). This group of stocks' market caps match PII's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INGR,23,304077,-6 EQM,11,40191,-1 PK,13,353031,-8 BOKF,15,205931,-2 Average,15.5,225808,-4.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $354 million in PII's case. Ingredion Inc (NYSE:INGR) is the most popular stock in this table. On the other hand EQM Midstream Partners, LP (NYSE:EQM) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Polaris Inc. (NYSE:PII) is more popular among hedge funds. 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. These stocks lost 22.3% in 2020 through March 16th and still beat the market by 3.2 percentage points. Unfortunately PII wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PII were disappointed as the stock returned -45.4% during the first two and a half months of 2020 (through March 16th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.