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. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Pentair plc (NYSE:PNR) in this article.
Pentair plc (NYSE:PNR) was in 26 hedge funds' portfolios at the end of December. PNR has experienced an increase in enthusiasm from smart money in recent months. There were 25 hedge funds in our database with PNR positions at the end of the previous quarter. Our calculations also showed that PNR 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).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[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. With all of this in mind let's take a look at the key hedge fund action regarding Pentair plc (NYSE:PNR).
Hedge fund activity in Pentair plc (NYSE:PNR)
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in PNR 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.
The largest stake in Pentair plc (NYSE:PNR) was held by Impax Asset Management, which reported holding $312.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $50.7 million position. Other investors bullish on the company included Balyasny Asset Management, AQR Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.48% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 1.48 percent of its 13F equity portfolio to PNR.
As aggregate interest increased, specific money managers have jumped into Pentair plc (NYSE:PNR) headfirst. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, initiated the most outsized position in Pentair plc (NYSE:PNR). Cinctive Capital Management had $7.6 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also initiated a $5.3 million position during the quarter. The other funds with new positions in the stock are Ray Dalio's Bridgewater Associates, Donald Sussman's Paloma Partners, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Pentair plc (NYSE:PNR) but similarly valued. These stocks are ABIOMED, Inc. (NASDAQ:ABMD), Douglas Emmett, Inc. (NYSE:DEI), Apartment Investment and Management Co. (NYSE:AIV), and IPG Photonics Corporation (NASDAQ:IPGP). This group of stocks' market valuations are closest to PNR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ABMD,35,679670,11 DEI,19,631403,-4 AIV,24,581817,-4 IPGP,25,194608,8 Average,25.75,521875,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $522 million. That figure was $507 million in PNR's case. ABIOMED, Inc. (NASDAQ:ABMD) is the most popular stock in this table. On the other hand Douglas Emmett, Inc. (NYSE:DEI) is the least popular one with only 19 bullish hedge fund positions. Pentair plc (NYSE:PNR) 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 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 but beat the market by 3.2 percentage points. Unfortunately PNR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PNR were disappointed as the stock returned -33.5% during the same time period 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. 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.