Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Honeywell International Inc. (NYSE:HON).
Honeywell International Inc. (NYSE:HON) investors should pay attention to a decrease in support from the world's most elite money managers lately. Our calculations also showed that HON isn't among the 30 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' 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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's review the recent hedge fund action regarding Honeywell International Inc. (NYSE:HON).
What does the smart money think about Honeywell International Inc. (NYSE:HON)?
At the end of the first quarter, a total of 56 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards HON over the last 15 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Phill Gross and Robert Atchinson's Adage Capital Management has the biggest position in Honeywell International Inc. (NYSE:HON), worth close to $451.2 million, corresponding to 1.1% of its total 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $305.9 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Israel Englander's Millennium Management, Brandon Haley's Holocene Advisors and John Overdeck and David Siegel's Two Sigma Advisors.
Seeing as Honeywell International Inc. (NYSE:HON) has faced falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedgies that decided to sell off their entire stakes in the third quarter. Interestingly, Michael Kharitonov and Jon David McAuliffe's Voleon Capital sold off the largest stake of the 700 funds watched by Insider Monkey, comprising an estimated $24.4 million in stock. Lee Ainslie's fund, Maverick Capital, also dropped its stock, about $8.8 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 1 funds in the third quarter.
Let's go over hedge fund activity in other stocks similar to Honeywell International Inc. (NYSE:HON). These stocks are Accenture Plc (NYSE:ACN), United Technologies Corporation (NYSE:UTX), Sanofi (NASDAQ:SNY), and Thermo Fisher Scientific Inc. (NYSE:TMO). All of these stocks' market caps match HON's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACN,40,976533,6 UTX,59,6558837,-5 SNY,26,860101,3 TMO,68,4435544,1 Average,48.25,3207754,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 48.25 hedge funds with bullish positions and the average amount invested in these stocks was $3208 million. That figure was $2985 million in HON's case. Thermo Fisher Scientific Inc. (NYSE:TMO) is the most popular stock in this table. On the other hand Sanofi (NASDAQ:SNY) is the least popular one with only 26 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on HON as the stock returned 4.6% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.