We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Huntington Ingalls Industries Inc (NYSE:HII).
Huntington Ingalls Industries Inc (NYSE:HII) investors should be aware of a decrease in activity from the world's largest hedge funds recently. HII was in 23 hedge funds' portfolios at the end of the second quarter of 2019. There were 31 hedge funds in our database with HII positions at the end of the previous quarter. Our calculations also showed that HII isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the fresh hedge fund action surrounding Huntington Ingalls Industries Inc (NYSE:HII).
What have hedge funds been doing with Huntington Ingalls Industries Inc (NYSE:HII)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -26% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in HII 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 Huntington Ingalls Industries Inc (NYSE:HII) was held by AQR Capital Management, which reported holding $443 million worth of stock at the end of March. It was followed by Adage Capital Management with a $67.3 million position. Other investors bullish on the company included East Side Capital (RR Partners), Point72 Asset Management, and Winton Capital Management.
Due to the fact that Huntington Ingalls Industries Inc (NYSE:HII) has witnessed a decline in interest from the aggregate hedge fund industry, it's safe to say that there exists a select few money managers who sold off their positions entirely last quarter. It's worth mentioning that Robert B. Gillam's McKinley Capital Management sold off the largest stake of all the hedgies watched by Insider Monkey, totaling about $11.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also cut its stock, about $5.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 8 funds last quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Huntington Ingalls Industries Inc (NYSE:HII) but similarly valued. We will take a look at Federal Realty Investment Trust (NYSE:FRT), The Mosaic Company (NYSE:MOS), DaVita Inc (NYSE:DVA), and NRG Energy Inc (NYSE:NRG). This group of stocks' market valuations are closest to HII's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FRT,23,222584,6 MOS,28,973892,-1 DVA,36,3435086,0 NRG,42,1548220,2 Average,32.25,1544946,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.25 hedge funds with bullish positions and the average amount invested in these stocks was $1545 million. That figure was $669 million in HII's case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand Federal Realty Investment Trust (NYSE:FRT) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Huntington Ingalls Industries Inc (NYSE:HII) is even less popular than FRT. Hedge funds dodged a bullet by taking a bearish stance towards HII. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HII wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HII investors were disappointed as the stock returned -5.4% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.