There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Intercontinental Exchange Inc (NYSE:ICE).
Hedge fund interest in Intercontinental Exchange Inc (NYSE:ICE) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that ICE isn't among the 30 most popular stocks among hedge funds (watch the video below). At the end of this article we will also compare ICE to other stocks including Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Waste Management, Inc. (NYSE:WM), and America Movil SAB de CV (NYSE:AMX) to get a better sense of its popularity. 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' 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.
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 go over the key hedge fund action regarding Intercontinental Exchange Inc (NYSE:ICE).
What does smart money think about Intercontinental Exchange Inc (NYSE:ICE)?
At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ICE over the last 16 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Cantillon Capital Management held the most valuable stake in Intercontinental Exchange Inc (NYSE:ICE), which was worth $393.2 million at the end of the second quarter. On the second spot was D E Shaw which amassed $306 million worth of shares. Moreover, Alkeon Capital Management, Iridian Asset Management, and Eminence Capital were also bullish on Intercontinental Exchange Inc (NYSE:ICE), allocating a large percentage of their portfolios to this stock.
Seeing as Intercontinental Exchange Inc (NYSE:ICE) has faced falling interest from hedge fund managers, logic holds that there were a few hedgies who sold off their full holdings heading into Q3. Interestingly, Doug Silverman and Alexander Klabin's Senator Investment Group said goodbye to the largest position of the 750 funds watched by Insider Monkey, valued at close to $137.1 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund dumped about $30.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Intercontinental Exchange Inc (NYSE:ICE). These stocks are Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Waste Management, Inc. (NYSE:WM), America Movil SAB de CV (NYSE:AMX), and Suncor Energy Inc. (NYSE:SU). This group of stocks' market valuations are similar to ICE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMFG,14,477204,4 WM,35,3415842,2 AMX,9,188315,-5 SU,32,1296788,-1 Average,22.5,1344537,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $1345 million. That figure was $1926 million in ICE's case. Waste Management, Inc. (NYSE:WM) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 9 bullish hedge fund positions. Intercontinental Exchange Inc (NYSE:ICE) 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 ICE as the stock returned 7.7% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.