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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Vertiv Holdings Co (NYSE:VRT).
Is VRT a good stock to buy now? Vertiv Holdings Co (NYSE:VRT) has seen an increase in support from the world's most elite money managers in recent months. Vertiv Holdings Co (NYSE:VRT) was in 51 hedge funds' portfolios at the end of September. The all time high for this statistics is 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that VRT isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ricky Sandler of Eminence Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we're going to take a look at the fresh hedge fund action regarding Vertiv Holdings Co (NYSE:VRT).
How have hedgies been trading Vertiv Holdings Co (NYSE:VRT)?
At third quarter's end, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards VRT over the last 21 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.
More specifically, Brahman Capital was the largest shareholder of Vertiv Holdings Co (NYSE:VRT), with a stake worth $136.6 million reported as of the end of September. Trailing Brahman Capital was Eminence Capital, which amassed a stake valued at $114.8 million. Arrowstreet Capital, Senator Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Brahman Capital allocated the biggest weight to Vertiv Holdings Co (NYSE:VRT), around 13.48% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, setting aside 12.52 percent of its 13F equity portfolio to VRT.
As aggregate interest increased, key money managers were leading the bulls' herd. Iridian Asset Management, managed by David Cohen and Harold Levy, assembled the most valuable position in Vertiv Holdings Co (NYSE:VRT). Iridian Asset Management had $23.3 million invested in the company at the end of the quarter. Leon Cooperman's Omega Advisors also initiated a $19.1 million position during the quarter. The other funds with brand new VRT positions are Ed Bosek's BeaconLight Capital, Ira Unschuld's Brant Point Investment Management, and Gregg Moskowitz's Interval Partners.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Vertiv Holdings Co (NYSE:VRT) but similarly valued. We will take a look at Healthcare Trust Of America Inc (NYSE:HTA), First American Financial Corp (NYSE:FAF), Companhia de Saneamento Basico (NYSE:SBS), Lumentum Holdings Inc (NASDAQ:LITE), Rexford Industrial Realty Inc (NYSE:REXR), TopBuild Corp (NYSE:BLD), and BigCommerce Holdings, Inc. (NASDAQ:BIGC). This group of stocks' market caps match VRT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTA,19,100300,3 FAF,42,712335,-2 SBS,11,197637,1 LITE,40,501941,-2 REXR,12,46806,-12 BLD,21,124114,-9 BIGC,18,357375,18 Average,23.3,291501,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $970 million in VRT's case. First American Financial Corp (NYSE:FAF) is the most popular stock in this table. On the other hand Companhia de Saneamento Basico (NYSE:SBS) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Vertiv Holdings Co (NYSE:VRT) is more popular among hedge funds. Our overall hedge fund sentiment score for VRT is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on VRT as the stock returned 12% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.