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Hedge Funds Mistimed Their Textron Inc. (TXT) Purchases

Abigail Fisher

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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 Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Textron Inc. (NYSE:TXT).

Textron Inc. (NYSE:TXT) was in 30 hedge funds' portfolios at the end of the fourth quarter of 2019. TXT investors should be aware of an increase in enthusiasm from smart money recently. There were 25 hedge funds in our database with TXT holdings at the end of the previous quarter. Our calculations also showed that TXT 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26082" align="aligncenter" width="399"] Andreas Halvorsen of Viking Global[/caption]

Andreas Halvorsen

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. Keeping this in mind let's review the recent hedge fund action surrounding Textron Inc. (NYSE:TXT).

How have hedgies been trading Textron Inc. (NYSE:TXT)?

At Q4's end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TXT over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Viking Global held the most valuable stake in Textron Inc. (NYSE:TXT), which was worth $220.5 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $112.4 million worth of shares. AQR Capital Management, D E Shaw, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Textron Inc. (NYSE:TXT), around 2.15% of its 13F portfolio. Levin Easterly Partners is also relatively very bullish on the stock, designating 1.99 percent of its 13F equity portfolio to TXT.

Consequently, key hedge funds were leading the bulls' herd. Viking Global, managed by Andreas Halvorsen, assembled the most valuable position in Textron Inc. (NYSE:TXT). Viking Global had $220.5 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $12.4 million position during the quarter. The following funds were also among the new TXT investors: Dmitry Balyasny's Balyasny Asset Management, Benjamin A. Smith's Laurion Capital Management, and Jinghua Yan's TwinBeech Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Textron Inc. (NYSE:TXT) but similarly valued. These stocks are FactSet Research Systems Inc. (NYSE:FDS), Aqua America, Inc. (NYSE:WTR), Formula One Group (NASDAQ:FWONA), and BeiGene, Ltd. (NASDAQ:BGNE). All of these stocks' market caps resemble TXT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FDS,24,225368,3 WTR,21,704399,-14 FWONA,22,427777,2 BGNE,16,2963457,6 Average,20.75,1080250,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $1080 million. That figure was $860 million in TXT's case. FactSet Research Systems Inc. (NYSE:FDS) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Textron Inc. (NYSE:TXT) 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 TXT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TXT were disappointed as the stock returned -39.6% 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.

5 Most Popular Stocks Among Hedge Funds

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

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