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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Illinois Tool Works Inc. (NYSE:ITW), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Illinois Tool Works Inc. (NYSE:ITW) was in 32 hedge funds' portfolios at the end of the fourth quarter of 2019. ITW investors should pay attention to a decrease in hedge fund interest recently. There were 33 hedge funds in our database with ITW positions at the end of the previous quarter. Our calculations also showed that ITW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are plenty of metrics shareholders have at their disposal to appraise publicly traded companies. A duo of the less known metrics are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best money managers can outperform their index-focused peers by a solid margin (see the details here).
[caption id="attachment_745225" align="aligncenter" width="400"] Noam Gottesman of GLG Partners[/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 we're going to check out the key hedge fund action surrounding Illinois Tool Works Inc. (NYSE:ITW).
How are hedge funds trading Illinois Tool Works Inc. (NYSE:ITW)?
Heading into the first quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the third quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in ITW a year ago. So, let's review 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, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Illinois Tool Works Inc. (NYSE:ITW). AQR Capital Management has a $96.9 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Markel Gayner Asset Management, managed by Tom Gayner, which holds a $57.3 million position; 0.8% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism contain Alexander Mitchell's Scopus Asset Management, John W. Rogers's Ariel Investments and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 2.16% of its 13F portfolio. Scopus Asset Management is also relatively very bullish on the stock, earmarking 1.48 percent of its 13F equity portfolio to ITW.
Since Illinois Tool Works Inc. (NYSE:ITW) has witnessed bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that slashed their entire stakes last quarter. Intriguingly, Dmitry Balyasny's Balyasny Asset Management sold off the biggest position of the "upper crust" of funds tracked by Insider Monkey, worth about $29.8 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund dropped about $25 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Illinois Tool Works Inc. (NYSE:ITW). These stocks are Prologis Inc (NYSE:PLD), Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), CSX Corporation (NASDAQ:CSX), and Eni SpA (NYSE:E). This group of stocks' market caps match ITW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PLD,35,456205,4 VRTX,53,3271636,3 CSX,46,2345719,5 E,6,45145,0 Average,35,1529676,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $1530 million. That figure was $471 million in ITW's case. Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 6 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) 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. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on ITW, though not to the same extent, as the stock returned -11.8% during the same time period and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.