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Illinois Tool Works Inc. (NYSE:ITW): Hedge Funds Are Dumping, Should You?

Illinois Tool Works Inc. (NYSE:ITW) investors should pay attention to a decrease in enthusiasm from smart money of late.

In today’s marketplace, there are dozens of metrics shareholders can use to monitor Mr. Market. Two of the most innovative are hedge fund and insider trading activity. At Insider Monkey, our research analyses have shown that, historically, those who follow the top picks of the elite hedge fund managers can outpace the market by a very impressive margin (see just how much).

Just as integral, optimistic insider trading activity is a second way to parse down the world of equities. As the old adage goes: there are plenty of motivations for a corporate insider to cut shares of his or her company, but just one, very clear reason why they would behave bullishly. Various academic studies have demonstrated the market-beating potential of this tactic if shareholders understand where to look (learn more here).

Consequently, we’re going to take a glance at the recent action surrounding Illinois Tool Works Inc. (NYSE:ITW).

What does the smart money think about Illinois Tool Works Inc. (NYSE:ITW)?

In preparation for this year, a total of 24 of the hedge funds we track were long in this stock, a change of -14% from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially.

Of the funds we track, Relational Investors, managed by Ralph V. Whitworth, holds the most valuable position in Illinois Tool Works Inc. (NYSE:ITW). Relational Investors has a $750 million position in the stock, comprising 14.4% of its 13F portfolio. On Relational Investors’s heels is Edinburgh Partners, managed by Sandy Nairn, which held a $195 million position; the fund has 11% of its 13F portfolio invested in the stock. Remaining hedge funds with similar optimism include Ric Dillon’s Diamond Hill Capital, Ricky Sandler’s Eminence Capital and John W. Rogers’s Ariel Investments.

Judging by the fact that Illinois Tool Works Inc. (NYSE:ITW) has faced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there exists a select few hedgies that slashed their entire stakes last quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the largest position of the “upper crust” of funds we monitor, comprising about $77 million in stock., and Malcolm Fairbairn of Ascend Capital was right behind this move, as the fund cut about $6 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds last quarter.

Manitowoc Company Inc. (NYSE:MTW), ITW’s peer, has also seen a decline in hedge fund interest. There were also 12 insider sales in the company as well. The lack of hedge fund interest in Manitowoc Company Inc. (NYSE:MTW) and Illinois Tool Works isn’t very encouraging.

How have insiders been trading Illinois Tool Works Inc. (NYSE:ITW)?

Insider purchases made by high-level executives is most useful when the primary stock in question has experienced transactions within the past half-year. Over the latest six-month time frame, Illinois Tool Works Inc. (NYSE:ITW) has experienced zero unique insiders buying, and 10 insider sales (see the details of insider trades here).

With the returns demonstrated by Insider Monkey’s studies, everyday investors must always keep an eye on hedge fund and insider trading activity, and Illinois Tool Works Inc. (NYSE:ITW) applies perfectly to this mantra.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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