Is Illinois Tool Works Inc. (NYSE:ITW) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Illinois Tool Works Inc. (NYSE:ITW) a healthy stock for your portfolio? Hedge funds are turning bullish. The number of long hedge fund positions improved by 1 lately. Our calculations also showed that ITW isn't among the 30 most popular stocks among hedge funds (see the video below). ITW was in 28 hedge funds' portfolios at the end of the second quarter of 2019. There were 27 hedge funds in our database with ITW holdings at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the fresh hedge fund action surrounding Illinois Tool Works Inc. (NYSE:ITW).
What does smart money think about Illinois Tool Works Inc. (NYSE:ITW)?
At Q2's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in ITW a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Illinois Tool Works Inc. (NYSE:ITW) was held by Ariel Investments, which reported holding $54.2 million worth of stock at the end of March. It was followed by AQR Capital Management with a $48 million position. Other investors bullish on the company included Markel Gayner Asset Management, Nitorum Capital, and Adage Capital Management.
Consequently, specific money managers were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, created the most valuable position in Illinois Tool Works Inc. (NYSE:ITW). Adage Capital Management had $31.6 million invested in the company at the end of the quarter. Mario Gabelli's GAMCO Investors also made a $2.5 million investment in the stock during the quarter. The other funds with brand new ITW positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Ronald Hua's Qtron Investments, and John Overdeck and David Siegel's Two Sigma Advisors.
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. These stocks are Bank of Montreal (NYSE:BMO), Relx PLC (NYSE:RELX), Workday Inc (NASDAQ:WDAY), and The Progressive Corporation (NYSE:PGR). This group of stocks' market valuations resemble ITW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BMO,13,292499,-2 RELX,3,106280,-4 WDAY,41,1469586,8 PGR,50,1803182,6 Average,26.75,917887,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $918 million. That figure was $306 million in ITW's case. The Progressive Corporation (NYSE:PGR) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 3 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ITW, though not to the same extent, as the stock returned 4.5% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.