Honeywell International Inc. (HON): Hedge Funds Remain Cautious

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed over the past few years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that hedge funds do have great stock picking skills, so let’s take a glance at the smart money sentiment towards Honeywell International Inc. (NYSE:HON).

Honeywell International Inc. (NYSE:HON) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 48 hedge funds’ portfolios at the end of the third quarter of 2016. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Royal Bank of Canada (USA) (NYSE:RY), Ambev SA (ADR) (NYSE:ABEV), and China Petroleum & Chemical Corp (ADR) (NYSE:SNP) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

How have hedgies been trading Honeywell International Inc. (NYSE:HON)?

At Q3’s end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from one quarter earlier. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Mario Gabelli’s GAMCO Investors has the most valuable position in Honeywell International Inc. (NYSE:HON), worth close to $209.5 million. Sitting at the No. 2 spot is Adage Capital Management, led by Phill Gross and Robert Atchinson, holding a $202.2 million position. Other members of the smart money that hold long positions contain Robert Polak’s Anchor Bolt Capital and John Overdeck and David Siegel’s Two Sigma Advisors.

Judging by the fact that Honeywell International Inc. (NYSE:HON) has experienced declining sentiment from the smart money, logic holds that there exists a select few money managers who sold off their entire stakes in the third quarter. Intriguingly, First Eagle Investment Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, worth close to $146.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its stock, about $48.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Honeywell International Inc. (NYSE:HON) but similarly valued. These stocks are Royal Bank of Canada (USA) (NYSE:RY), Ambev SA (ADR) (NYSE:ABEV), China Petroleum & Chemical Corp (ADR) (NYSE:SNP), and Eli Lilly & Co. (NYSE:LLY). This group of stocks’ market caps resemble HON’s market cap.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $952 million. That figure was $1.61 billion in HON’s case. Eli Lilly & Co. (NYSE:LLY) is the most popular stock in this table. On the other hand China Petroleum & Chemical Corp (ADR) (NYSE:SNP) is the least popular one with only 11 bullish hedge fund positions. Honeywell International Inc. (NYSE:HON) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard LLY might be a better candidate to consider a long position in.

Disclosure: None