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Hedge Funds Have Never Been This Bullish On Polaris Inc. (PII)

Reymerlyn Martin

The 700+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Polaris Inc. (NYSE:PII).

Polaris Inc. (NYSE:PII) investors should be aware of an increase in support from the world's most elite money managers lately. Our calculations also showed that PII isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 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 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.

[caption id="attachment_26340" align="aligncenter" width="594"] Ken Griffin of Citadel Investment Group[/caption]

CITADEL INVESTMENT GROUP

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 gander at the fresh hedge fund action surrounding Polaris Inc. (NYSE:PII).

How are hedge funds trading Polaris Inc. (NYSE:PII)?

At the end of the third quarter, a total of 25 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 PII over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PII_dec2019

The largest stake in Polaris Inc. (NYSE:PII) was held by Citadel Investment Group, which reported holding $124.8 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $57 million position. Other investors bullish on the company included Balyasny Asset Management, Alyeska Investment Group, and Interval Partners. In terms of the portfolio weights assigned to each position Bronson Point Partners allocated the biggest weight to Polaris Inc. (NYSE:PII), around 2.1% of its portfolio. Interval Partners is also relatively very bullish on the stock, designating 1.4 percent of its 13F equity portfolio to PII.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. ExodusPoint Capital, managed by Michael Gelband, initiated the most outsized position in Polaris Inc. (NYSE:PII). ExodusPoint Capital had $3.3 million invested in the company at the end of the quarter. Anthony Joseph Vaccarino's North Fourth Asset Management also initiated a $2.4 million position during the quarter. The following funds were also among the new PII investors: Larry Foley and Paul Farrell's Bronson Point Partners, Joel Greenblatt's Gotham Asset Management, and Matthew Tewksbury's Stevens Capital Management.

Let's go over hedge fund activity in other stocks similar to Polaris Inc. (NYSE:PII). We will take a look at Acuity Brands, Inc. (NYSE:AYI), Quanta Services Inc (NYSE:PWR), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks' market values are closest to PII's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AYI,26,897765,3 PWR,30,881523,1 LECO,16,256053,-6 THG,25,272433,5 Average,24.25,576944,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $359 million in PII's case. Quanta Services Inc (NYSE:PWR) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 16 bullish hedge fund positions. Polaris Inc. (NYSE:PII) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on PII as the stock returned 11.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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