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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ingersoll Rand Inc. (NYSE:IR) and determine whether hedge funds had an edge regarding this stock.
Ingersoll Rand Inc. (NYSE:IR) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 47. IR has seen a decrease in activity from the world's largest hedge funds lately. There were 33 hedge funds in our database with IR holdings at the end of March. Our calculations also showed that IR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are perceived as slow, old investment vehicles of yesteryear. While there are more than 8000 funds with their doors open today, Our researchers hone in on the upper echelon of this group, approximately 850 funds. These money managers watch over most of the hedge fund industry's total capital, and by paying attention to their first-class stock picks, Insider Monkey has discovered several investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Andreas Halvorsen of Viking Global
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let's take a glance at the recent hedge fund action encompassing Ingersoll Rand Inc. (NYSE:IR).
How have hedgies been trading Ingersoll Rand Inc. (NYSE:IR)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IR over the last 20 quarters. So, let's find out 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 Ingersoll Rand Inc. (NYSE:IR), which was worth $286.7 million at the end of the third quarter. On the second spot was Goodnow Investment Group which amassed $22.3 million worth of shares. Arrowstreet Capital, Greenhouse Funds, and Millennium 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 Goodnow Investment Group allocated the biggest weight to Ingersoll Rand Inc. (NYSE:IR), around 2.66% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, dishing out 1.78 percent of its 13F equity portfolio to IR.
Since Ingersoll Rand Inc. (NYSE:IR) has experienced falling interest from the aggregate hedge fund industry, it's safe to say that there exists a select few hedgies who sold off their positions entirely by the end of the second quarter. Interestingly, Brandon Haley's Holocene Advisors said goodbye to the largest position of all the hedgies followed by Insider Monkey, comprising about $8.2 million in stock, and David Harding's Winton Capital Management was right behind this move, as the fund dropped about $1.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 2 funds by the end of the second quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Ingersoll Rand Inc. (NYSE:IR) but similarly valued. These stocks are Omnicom Group Inc. (NYSE:OMC), Xylem Inc (NYSE:XYL), NortonLifeLock Inc. (NASDAQ:NLOK), Arch Capital Group Ltd. (NASDAQ:ACGL), PagSeguro Digital Ltd. (NYSE:PAGS), Expedia Group Inc (NASDAQ:EXPE), and Brown & Brown, Inc. (NYSE:BRO). All of these stocks' market caps match IR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OMC,31,588433,0 XYL,22,504853,-5 NLOK,37,1370802,-5 ACGL,36,1077194,3 PAGS,27,1013173,7 EXPE,61,3109490,20 BRO,24,633665,-2 Average,34,1185373,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $1185 million. That figure was $408 million in IR's case. Expedia Group Inc (NASDAQ:EXPE) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 22 bullish hedge fund positions. Ingersoll Rand Inc. (NYSE:IR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for IR is 34.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on IR as the stock returned 29.2% since the end of June (through September 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.