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Xylem Inc (XYL): Hedge Funds Turned Bullish But Not Bullish Enough

Nina Todic

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find write-ups about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Xylem Inc (NYSE:XYL) based on that data.

Xylem Inc (NYSE:XYL) was in 19 hedge funds' portfolios at the end of June. XYL has seen an increase in activity from the world's largest hedge funds lately. There were 13 hedge funds in our database with XYL holdings at the end of the previous quarter. Our calculations also showed that XYL isn't among the 30 most popular stocks among hedge funds.

To most investors, hedge funds are seen as underperforming, old financial tools of yesteryear. While there are greater than 8000 funds with their doors open at present, Our experts hone in on the upper echelon of this club, about 750 funds. It is estimated that this group of investors control the majority of the smart money's total capital, and by shadowing their matchless investments, Insider Monkey has found various investment strategies that have historically exceeded Mr. Market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

CHILTON INVESTMENT COMPANY

Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the latest hedge fund action surrounding Xylem Inc (NYSE:XYL).

How have hedgies been trading Xylem Inc (NYSE:XYL)?

At Q2's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 46% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in XYL a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

No of Hedge Funds with XYL Positions

More specifically, Impax Asset Management was the largest shareholder of Xylem Inc (NYSE:XYL), with a stake worth $352.4 million reported as of the end of March. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $140.1 million. Chilton Investment Company, Carlson Capital, and Locust Wood Capital Advisers were also very fond of the stock, giving the stock large weights in their portfolios.

As one would reasonably expect, specific money managers have jumped into Xylem Inc (NYSE:XYL) headfirst. Chilton Investment Company, managed by Richard Chilton, initiated the most outsized position in Xylem Inc (NYSE:XYL). Chilton Investment Company had $67.4 million invested in the company at the end of the quarter. Clint Carlson's Carlson Capital also made a $33.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell's Scopus Asset Management, Dmitry Balyasny's Balyasny Asset Management, and Renaissance Technologies.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Xylem Inc (NYSE:XYL) but similarly valued. These stocks are DXC Technology Company (NYSE:DXC), Gartner Inc (NYSE:IT), NetApp Inc. (NASDAQ:NTAP), and Darden Restaurants, Inc. (NYSE:DRI). This group of stocks' market valuations resemble XYL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DXC,41,2116402,-5 IT,17,1005108,2 NTAP,26,907458,2 DRI,24,798896,-14 Average,27,1206966,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $1207 million. That figure was $675 million in XYL's case. DXC Technology Company (NYSE:DXC) is the most popular stock in this table. On the other hand Gartner Inc (NYSE:IT) is the least popular one with only 17 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately XYL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); XYL investors were disappointed as the stock returned -4.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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