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Did Hedge Funds Drop The Ball On PerkinElmer, Inc. (PKI) ?

Before we spend days researching a stock idea we’d like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about PerkinElmer, Inc. (NYSE:PKI).

Is PerkinElmer, Inc. (NYSE:PKI) the right investment to pursue these days? The smart money is taking a pessimistic view. The number of bullish hedge fund bets retreated by 4 lately. Our calculations also showed that PKI isn’t among the 30 most popular stocks among hedge funds. PKI was in 19 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with PKI positions at the end of the previous quarter.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

BRIDGEWATER ASSOCIATES

We’re going to take a gander at the latest hedge fund action encompassing PerkinElmer, Inc. (NYSE:PKI).

How are hedge funds trading PerkinElmer, Inc. (NYSE:PKI)?

At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in PKI a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

PKI_mar2019

The largest stake in PerkinElmer, Inc. (NYSE:PKI) was held by Select Equity Group, which reported holding $688.4 million worth of stock at the end of September. It was followed by Impax Asset Management with a $52.3 million position. Other investors bullish on the company included Fisher Asset Management, Echo Street Capital Management, and Millennium Management.

Because PerkinElmer, Inc. (NYSE:PKI) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of money managers that decided to sell off their positions entirely heading into Q3. Interestingly, Christopher James’s Partner Fund Management said goodbye to the largest stake of the 700 funds tracked by Insider Monkey, totaling about $67.5 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also said goodbye to its stock, about $10.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 4 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as PerkinElmer, Inc. (NYSE:PKI) but similarly valued. These stocks are Federal Realty Investment Trust (NYSE:FRT), Equity Lifestyle Properties, Inc. (NYSE:ELS), Mohawk Industries, Inc. (NYSE:MHK), and Newell Brands Inc. (NASDAQ:NWL). This group of stocks’ market valuations resemble PKI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FRT 17 234541 -4
ELS 15 546977 1
MHK 32 1671761 -17
NWL 30 1427456 -6
Average 23.5 970184 -6.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $970 million. That figure was $899 million in PKI’s case. Mohawk Industries, Inc. (NYSE:MHK) is the most popular stock in this table. On the other hand Equity Lifestyle Properties, Inc. (NYSE:ELS) is the least popular one with only 15 bullish hedge fund positions. PerkinElmer, Inc. (NYSE:PKI) 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 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on PKI as the stock returned 27% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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