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Xylem Inc (XYL): Hedge Funds In Wait-and-See Mode

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 873 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of June 30th, 2021. In this article we are going to take a look at smart money sentiment towards Xylem Inc (NYSE:XYL).

Hedge fund interest in Xylem Inc (NYSE:XYL) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that XYL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). At the end of this article we will also compare XYL to other stocks including Fox Corporation (NASDAQ:FOXA), PPL Corporation (NYSE:PPL), and 10x Genomics, Inc. (NASDAQ:TXG) to get a better sense of its popularity.

To the average investor there are many gauges investors can use to grade stocks. A pair of the best gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can outperform the broader indices by a healthy amount (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let's review the new hedge fund action encompassing Xylem Inc (NYSE:XYL).

Do Hedge Funds Think XYL Is A Good Stock To Buy Now?

At Q2's end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in XYL over the last 24 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, 0 held the most valuable stake in Xylem Inc (NYSE:XYL), which was worth $736.6 million at the end of the second quarter. On the second spot was GAMCO Investors which amassed $96.1 million worth of shares. Millennium Management, Montanaro Asset Management, and AQR Capital 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 Impax Asset Management allocated the biggest weight to Xylem Inc (NYSE:XYL), around 3.25% of its 13F portfolio. Montanaro Asset Management is also relatively very bullish on the stock, setting aside 3.2 percent of its 13F equity portfolio to XYL.

Judging by the fact that Xylem Inc (NYSE:XYL) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there were a few fund managers who were dropping their full holdings heading into Q3. It's worth mentioning that Phill Gross and Robert Atchinson's Adage Capital Management cut the largest investment of the "upper crust" of funds tracked by Insider Monkey, totaling close to $8.2 million in stock, and Michael Hintze's CQS Cayman LP was right behind this move, as the fund dumped about $6.7 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to Xylem Inc (NYSE:XYL). We will take a look at Fox Corporation (NASDAQ:FOXA), PPL Corporation (NYSE:PPL), 10x Genomics, Inc. (NASDAQ:TXG), Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), Tractor Supply Company (NASDAQ:TSCO), Burlington Stores Inc (NYSE:BURL), and Cheniere Energy Partners LP (NYSE:CQP). This group of stocks' market values are closest to XYL's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOXA,35,441270,-3 PPL,23,417630,-2 TXG,28,1447446,5 TLK,5,108737,1 TSCO,38,1374315,9 BURL,43,1690108,11 CQP,2,4279,0 Average,24.9,783398,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $783 million. That figure was $932 million in XYL's case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 2 bullish hedge fund positions. Xylem Inc (NYSE:XYL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XYL is 55.3. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on XYL as the stock returned 7.6% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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