Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. Trends reversed 180 degrees during the first quarter amid Powell's pivot and optimistic expectations towards a trade deal with China. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were increasing their overall exposure in the first quarter and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Ingersoll-Rand Plc (NYSE:IR).
Ingersoll-Rand Plc (NYSE:IR) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that IR isn't among the 30 most popular stocks among hedge funds.
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 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 take a peek at the new hedge fund action surrounding Ingersoll-Rand Plc (NYSE:IR).
Hedge fund activity in Ingersoll-Rand Plc (NYSE:IR)
At Q1's end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. By comparison, 36 hedge funds held shares or bullish call options in IR a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Generation Investment Management was the largest shareholder of Ingersoll-Rand Plc (NYSE:IR), with a stake worth $355.4 million reported as of the end of March. Trailing Generation Investment Management was Citadel Investment Group, which amassed a stake valued at $156.2 million. Alyeska Investment Group, Two Sigma Advisors, and Impax Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since Ingersoll-Rand Plc (NYSE:IR) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Clint Carlson's Carlson Capital cut the largest investment of the 700 funds monitored by Insider Monkey, comprising close to $25.1 million in stock. Ilya Boroditsky's fund, Precision Path Capital, also cut its stock, about $13.7 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 4 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 Ingersoll-Rand Plc (NYSE:IR) but similarly valued. We will take a look at Zimmer Biomet Holdings Inc (NYSE:ZBH), MPLX LP (NYSE:MPLX), Corning Incorporated (NYSE:GLW), and NXP Semiconductors NV (NASDAQ:NXPI). This group of stocks' market values match IR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZBH,35,1765125,-1 MPLX,10,399099,-1 GLW,37,622563,7 NXPI,52,3358284,-20 Average,33.5,1536268,-3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1536 million. That figure was $1626 million in IR's case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 10 bullish hedge fund positions. Ingersoll-Rand Plc (NYSE:IR) 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 IR as the stock returned 10.9% 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.