Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Ingredion Inc (NYSE:INGR).
Is Ingredion Inc (NYSE:INGR) a buy, sell, or hold? Money managers are in an optimistic mood. The number of long hedge fund positions rose by 6 in recent months. Our calculations also showed that INGR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). INGR was in 27 hedge funds' portfolios at the end of September. There were 21 hedge funds in our database with INGR positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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_189632" align="aligncenter" width="450"] David Harding of Winton Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the latest hedge fund action surrounding Ingredion Inc (NYSE:INGR).
How have hedgies been trading Ingredion Inc (NYSE:INGR)?
Heading into the fourth quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in INGR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ingredion Inc (NYSE:INGR) was held by AQR Capital Management, which reported holding $111 million worth of stock at the end of September. It was followed by D E Shaw with a $58.4 million position. Other investors bullish on the company included Winton Capital Management, Millennium Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Ingredion Inc (NYSE:INGR), around 0.4% of its portfolio. Cerebellum Capital is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to INGR.
As industrywide interest jumped, key hedge funds have jumped into Ingredion Inc (NYSE:INGR) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the most valuable position in Ingredion Inc (NYSE:INGR). Balyasny Asset Management had $2.7 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also made a $1.9 million investment in the stock during the quarter. The following funds were also among the new INGR investors: Israel Englander's Millennium Management, William B. Gray's Orbis Investment Management, and Paul Tudor Jones's Tudor Investment Corp.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Ingredion Inc (NYSE:INGR) but similarly valued. These stocks are Cloudflare, Inc. (NYSE:NET), Suzano S.A. (NYSE:SUZ), Amarin Corporation plc (NASDAQ:AMRN), and Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC). All of these stocks' market caps are similar to INGR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NET,33,144754,33 SUZ,4,36039,2 AMRN,29,1392510,-4 PAC,3,93322,-1 Average,17.25,416656,7.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $343 million in INGR's case. Cloudflare, Inc. (NYSE:NET) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 3 bullish hedge fund positions. Ingredion Inc (NYSE:INGR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately INGR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on INGR were disappointed as the stock returned 1.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.