It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 15 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 19.7% during the first 2.5 months of 2019 (vs. 13.1% gain for SPY), with 93% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Hillenbrand, Inc. (NYSE:HI).
Is Hillenbrand, Inc. (NYSE:HI) undervalued? The smart money is becoming less hopeful. The number of bullish hedge fund positions were trimmed by 2 recently. Our calculations also showed that HI isn't among the 30 most popular stocks among hedge funds. HI was in 18 hedge funds' portfolios at the end of December. There were 20 hedge funds in our database with HI positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We're going to take a look at the recent hedge fund action encompassing Hillenbrand, Inc. (NYSE:HI).
What have hedge funds been doing with Hillenbrand, Inc. (NYSE:HI)?
Heading into the first quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards HI over the last 14 quarters. With hedgies' capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Jim Simons's Renaissance Technologies has the number one position in Hillenbrand, Inc. (NYSE:HI), worth close to $11.3 million, accounting for less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Joel Greenblatt of Gotham Asset Management, with a $6.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Noam Gottesman's GLG Partners, D. E. Shaw's D E Shaw and John Overdeck and David Siegel's Two Sigma Advisors.
Judging by the fact that Hillenbrand, Inc. (NYSE:HI) has experienced declining sentiment from the smart money, logic holds that there lies a certain "tier" of hedgies that decided to sell off their full holdings last quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital dumped the largest position of the 700 funds watched by Insider Monkey, valued at an estimated $3.6 million in stock. Thomas Bailard's fund, Bailard Inc, also cut its stock, about $0.7 million worth. These transactions are interesting, as total hedge fund interest was cut by 2 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Hillenbrand, Inc. (NYSE:HI). These stocks are Envestnet Inc (NYSE:ENV), Sensient Technologies Corporation (NYSE:SXT), HMS Holdings Corp. (NASDAQ:HMSY), and Transportadora de Gas del Sur SA (NYSE:TGS). This group of stocks' market values resemble HI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENV,12,82671,-1 SXT,15,85054,4 HMSY,22,134551,6 TGS,8,42096,-1 Average,14.25,86093,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $50 million in HI's case. HMS Holdings Corp. (NASDAQ:HMSY) is the most popular stock in this table. On the other hand Transportadora de Gas del Sur SA (NYSE:TGS) is the least popular one with only 8 bullish hedge fund positions. Hillenbrand, Inc. (NYSE:HI) 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately HI wasn't nearly as popular as these 15 stock and hedge funds that were betting on HI were disappointed as the stock returned 12.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.