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Is Ingredion Inc (INGR) Going to Burn These Hedge Funds?

Abigail Fisher

"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Ingredion Inc (NYSE:INGR) the right pick for your portfolio? The smart money is in a bearish mood. The number of long hedge fund bets dropped by 1 lately. Our calculations also showed that INGR 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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

Let's take a glance at the latest hedge fund action surrounding Ingredion Inc (NYSE:INGR).

What have hedge funds been doing with Ingredion Inc (NYSE:INGR)?

Heading into the fourth quarter of 2018, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in INGR over the last 13 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).

INGR_dec2018

More specifically, AQR Capital Management was the largest shareholder of Ingredion Inc (NYSE:INGR), with a stake worth $152.7 million reported as of the end of September. Trailing AQR Capital Management was Fisher Asset Management, which amassed a stake valued at $71.2 million. Renaissance Technologies, Gotham Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Ingredion Inc (NYSE:INGR) has experienced falling interest from the smart money, we can see that there was a specific group of fund managers that decided to sell off their entire stakes in the third quarter. Intriguingly, George Hall's Clinton Group cut the biggest stake of the 700 funds watched by Insider Monkey, comprising about $1.8 million in stock. D. E. Shaw's fund, D E Shaw, also said goodbye to its stock, about $1.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 1 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to Ingredion Inc (NYSE:INGR). These stocks are The Madison Square Garden Company (NYSE:MSG), EPAM Systems Inc (NYSE:EPAM), RingCentral Inc (NYSE:RNG), and Logitech International SA (NASDAQ:LOGI). This group of stocks' market caps are closest to INGR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSG,40,1773567,-2 EPAM,21,165154,-1 RNG,42,1084469,2 LOGI,19,286411,3 Average,30.5,827400,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $827 million. That figure was $339 million in INGR's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Logitech International SA (NASDAQ:LOGI) is the least popular one with only 19 bullish hedge fund positions. Ingredion Inc (NYSE:INGR) 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. In this regard RNG might be a better candidate to consider a long position.

Disclosure: None. This article was originally published at Insider Monkey.

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