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Were Hedge Funds Right About Crowding Into Vertiv Holdings Co (VRT)?

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At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Vertiv Holdings Co (NYSE:VRT).

Is Vertiv Holdings Co (NYSE:VRT) a good stock to buy now? Prominent investors were getting more optimistic. The number of bullish hedge fund positions increased by 1 lately. Vertiv Holdings Co (NYSE:VRT) was in 40 hedge funds' portfolios at the end of June. The all time high for this statistics is 39. 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 Q2 rankings and see the video for a quick look at the top 5 stocks). There were 39 hedge funds in our database with VRT positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are plenty of indicators shareholders have at their disposal to analyze their holdings. Two of the less known indicators are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the top money managers can trounce the S&P 500 by a significant amount (see the details here).

Sahm Adrangi Kerrisdale Capital
Sahm Adrangi Kerrisdale Capital

Sahm Adrangi of Kerrisdale Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. Now let's analyze the fresh hedge fund action regarding Vertiv Holdings Co (NYSE:VRT).

How are hedge funds trading Vertiv Holdings Co (NYSE:VRT)?

At second quarter's end, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in VRT a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in Vertiv Holdings Co (NYSE:VRT) was held by Eminence Capital, which reported holding $172.8 million worth of stock at the end of June. It was followed by Brahman Capital with a $105.5 million position. Other investors bullish on the company included Alyeska Investment Group, Lomas Capital Management, and Locust Wood Capital Advisers. In terms of the portfolio weights assigned to each position Corsair Capital Management allocated the biggest weight to Vertiv Holdings Co (NYSE:VRT), around 11.03% of its 13F portfolio. Brahman Capital is also relatively very bullish on the stock, earmarking 10.21 percent of its 13F equity portfolio to VRT.

Consequently, key money managers were leading the bulls' herd. Senator Investment Group, managed by Doug Silverman and Alexander Klabin, assembled the most outsized position in Vertiv Holdings Co (NYSE:VRT). Senator Investment Group had $25.8 million invested in the company at the end of the quarter. Robert Pohly's Samlyn Capital also initiated a $11.5 million position during the quarter. The following funds were also among the new VRT investors: Renaissance Technologies, Rob Citrone's Discovery Capital Management, and Sahm Adrangi's Kerrisdale Capital.

Let's go over hedge fund activity in other stocks similar to Vertiv Holdings Co (NYSE:VRT). We will take a look at MDU Resources Group Inc (NYSE:MDU), MSA Safety Incorporated (NYSE:MSA), Alaska Air Group, Inc. (NYSE:ALK), Cousins Properties Incorporated (NYSE:CUZ), Agora, Inc. (NASDAQ:API), Legg Mason, Inc. (NYSE:LM), and Ritchie Bros. Auctioneers Incorporated (NYSE:RBA). All of these stocks' market caps resemble VRT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MDU,21,182406,-4 MSA,26,71378,15 ALK,29,296249,2 CUZ,19,116111,-3 API,29,159853,29 LM,30,1102060,-8 RBA,17,221281,3 Average,24.4,307048,4.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $307 million. That figure was $747 million in VRT's case. Legg Mason, Inc. (NYSE:LM) is the most popular stock in this table. On the other hand Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) is the least popular one with only 17 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 86. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on VRT as the stock returned 30.2% since the end of June (through 10/30) 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.

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