Before we spend countless hours researching a company, we'd like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Illinois Tool Works Inc. (NYSE:ITW).
Illinois Tool Works Inc. (NYSE:ITW) was in 27 hedge funds' portfolios at the end of March. ITW has seen a decrease in enthusiasm from smart money recently. There were 28 hedge funds in our database with ITW positions at the end of the previous quarter. Our calculations also showed that ITW isn't among the 30 most popular stocks among hedge funds.
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 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 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 our short portfolio.
Let's go over the latest hedge fund action encompassing Illinois Tool Works Inc. (NYSE:ITW).
How have hedgies been trading Illinois Tool Works Inc. (NYSE:ITW)?
Heading into the second quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards ITW over the last 15 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Illinois Tool Works Inc. (NYSE:ITW), which was worth $79.3 million at the end of the first quarter. On the second spot was Ariel Investments which amassed $52.1 million worth of shares. Moreover, AQR Capital Management, Markel Gayner Asset Management, and Nitorum Capital were also bullish on Illinois Tool Works Inc. (NYSE:ITW), allocating a large percentage of their portfolios to this stock.
Seeing as Illinois Tool Works Inc. (NYSE:ITW) has experienced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few funds that elected to cut their positions entirely by the end of the third quarter. Intriguingly, Matt Simon (Citadel)'s Ashler Capital dropped the biggest position of the 700 funds tracked by Insider Monkey, valued at an estimated $34.1 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund cut about $22.2 million worth. These moves are interesting, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Illinois Tool Works Inc. (NYSE:ITW) but similarly valued. We will take a look at UBS Group AG (NYSE:UBS), Biogen Inc. (NASDAQ:BIIB), Northrop Grumman Corporation (NYSE:NOC), and Micron Technology, Inc. (NASDAQ:MU). This group of stocks' market valuations are similar to ITW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UBS,11,750775,0 BIIB,49,2936721,-8 NOC,35,815559,6 MU,61,3472436,0 Average,39,1993873,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1994 million. That figure was $315 million in ITW's case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand UBS Group AG (NYSE:UBS) is the least popular one with only 11 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ITW wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ITW investors were disappointed as the stock returned -1.9% 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.