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Xylem Inc (XYL): Hedge Funds Are In The Mood

Debasis Saha

In this article we will take a look at whether hedge funds think Xylem Inc (NYSE:XYL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Xylem Inc (NYSE:XYL) investors should be aware of an increase in support from the world's most elite money managers lately. XYL was in 27 hedge funds' portfolios at the end of March. There were 21 hedge funds in our database with XYL positions at the end of the previous quarter. Our calculations also showed that XYL isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's go over the key hedge fund action regarding Xylem Inc (NYSE:XYL).

What does smart money think about Xylem Inc (NYSE:XYL)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in XYL a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is XYL A Good Stock To Buy?

More specifically, Impax Asset Management was the largest shareholder of Xylem Inc (NYSE:XYL), with a stake worth $292.8 million reported as of the end of September. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $82.4 million. Millennium Management, CQS Cayman LP, and Maverick Capital 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 3.9% of its 13F portfolio. Albar Capital is also relatively very bullish on the stock, designating 2.88 percent of its 13F equity portfolio to XYL.

Consequently, specific money managers have been driving this bullishness. Albar Capital, managed by Javier Velazquez, initiated the largest position in Xylem Inc (NYSE:XYL). Albar Capital had $3 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $2.9 million position during the quarter. The other funds with new positions in the stock are Louis Bacon's Moore Global Investments, Greg Eisner's Engineers Gate Manager, and Robert Vincent McHugh's Jade Capital Advisors.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Xylem Inc (NYSE:XYL) but similarly valued. We will take a look at Tyler Technologies, Inc. (NYSE:TYL), Sun Communities Inc (NYSE:SUI), Pioneer Natural Resources Company (NYSE:PXD), and Invitation Homes Inc. (NYSE:INVH). This group of stocks' market caps resemble XYL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TYL,30,405643,9 SUI,28,323201,-3 PXD,40,534807,-13 INVH,27,562992,-6 Average,31.25,456661,-3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.25 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $428 million in XYL's case. Pioneer Natural Resources Company (NYSE:PXD) is the most popular stock in this table. On the other hand Invitation Homes Inc. (NYSE:INVH) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Xylem Inc (NYSE:XYL) is even less popular than INVH. Hedge funds dodged a bullet by taking a bearish stance towards XYL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately XYL wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XYL investors were disappointed as the stock returned 2.3% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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

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