Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards PPG Industries, Inc. (NYSE:PPG) to find out whether it was one of their high conviction long-term ideas.
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 32 percentage points since May 2014 through March 12, 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.
We're going to take a peek at the new hedge fund action regarding PPG Industries, Inc. (NYSE:PPG).
What does the smart money think about PPG Industries, Inc. (NYSE:PPG)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in PPG over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Trian Partners was the largest shareholder of PPG Industries, Inc. (NYSE:PPG), with a stake worth $716.6 million reported as of the end of September. Trailing Trian Partners was Adage Capital Management, which amassed a stake valued at $45 million. Balyasny Asset Management, Scopus Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Because PPG Industries, Inc. (NYSE:PPG) has experienced declining sentiment from the aggregate hedge fund industry, it's safe to say that there exists a select few hedge funds who sold off their entire stakes in the third quarter. It's worth mentioning that John Brennan's Sirios Capital Management dropped the largest position of all the hedgies monitored by Insider Monkey, worth close to $21.6 million in stock, and Israel Englander's Millennium Management was right behind this move, as the fund dropped about $14 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as PPG Industries, Inc. (NYSE:PPG) but similarly valued. We will take a look at Amphenol Corporation (NYSE:APH), Ferrari N.V. (NYSE:RACE), Equity Residential (NYSE:EQR), and Corning Incorporated (NYSE:GLW). All of these stocks' market caps resemble PPG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position APH,21,478702,-4 RACE,28,854998,2 EQR,23,290037,0 GLW,30,456523,3 Average,25.5,520065,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $520 million. That figure was $820 million in PPG's case. Corning Incorporated (NYSE:GLW) is the most popular stock in this table. On the other hand Amphenol Corporation (NYSE:APH) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks PPG Industries, Inc. (NYSE:PPG) is even less popular than APH. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis.Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately PPG wasn't in this group. Hedge funds that bet on PPG were disappointed as the stock returned 8.1% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.