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 (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 Hill-Rom Holdings, Inc. (NYSE:HRC) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in Hill-Rom Holdings, Inc. (NYSE:HRC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HRC 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). At the end of this article we will also compare HRC to other stocks including Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), and Exelixis, Inc. (NASDAQ:EXEL) to get a better sense of its popularity. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Michael Castor of Sio Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let's take a glance at the fresh hedge fund action regarding Hill-Rom Holdings, Inc. (NYSE:HRC).
What have hedge funds been doing with Hill-Rom Holdings, Inc. (NYSE:HRC)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HRC over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Hill-Rom Holdings, Inc. (NYSE:HRC) was held by Select Equity Group, which reported holding $390.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $157.1 million position. Other investors bullish on the company included Fisher Asset Management, Redmile Group, and Holocene Advisors. In terms of the portfolio weights assigned to each position Sivik Global Healthcare allocated the biggest weight to Hill-Rom Holdings, Inc. (NYSE:HRC), around 3.16% of its 13F portfolio. Sio Capital is also relatively very bullish on the stock, setting aside 2.88 percent of its 13F equity portfolio to HRC.
Because Hill-Rom Holdings, Inc. (NYSE:HRC) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there is a sect of funds who were dropping their full holdings by the end of the second quarter. Interestingly, Roberto Mignone's Bridger Management cut the largest stake of all the hedgies monitored by Insider Monkey, valued at about $19.2 million in stock, and Brad Farber's Atika Capital was right behind this move, as the fund sold off about $6.2 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Hill-Rom Holdings, Inc. (NYSE:HRC) but similarly valued. We will take a look at Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), Exelixis, Inc. (NASDAQ:EXEL), Americold Realty Trust (NYSE:COLD), Formula One Group (NASDAQ:FWONA), Mohawk Industries, Inc. (NYSE:MHK), and AGNC Investment Corp. (NASDAQ:AGNC). All of these stocks' market caps resemble HRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VNO,17,126380,-8 REYN,17,319911,0 EXEL,39,1170545,9 COLD,29,290324,4 FWONA,17,248890,0 MHK,32,693381,-4 AGNC,37,458061,10 Average,26.9,472499,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $472 million. That figure was $945 million in HRC's case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 bullish hedge fund positions. Hill-Rom Holdings, Inc. (NYSE:HRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HRC is 62.7. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 gained 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately HRC wasn't nearly as popular as these 10 stocks and hedge funds that were betting on HRC were disappointed as the stock returned -22.8% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.