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Did Hedge Funds Make The Right Call On Carlisle Companies, Inc. (CSL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Carlisle Companies, Inc. (NYSE:CSL) and determine whether hedge funds skillfully traded this stock.

Carlisle Companies, Inc. (NYSE:CSL) was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. CSL has experienced a decrease in hedge fund interest in recent months. There were 26 hedge funds in our database with CSL holdings at the end of the previous quarter. Our calculations also showed that CSL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind we’re going to take a peek at the new hedge fund action encompassing Carlisle Companies, Inc. (NYSE:CSL).

How have hedgies been trading Carlisle Companies, Inc. (NYSE:CSL)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the fourth quarter of 2019. On the other hand, there were a total of 22 hedge funds with a bullish position in CSL a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is CSL A Good Stock To Buy?

More specifically, AQR Capital Management was the largest shareholder of Carlisle Companies, Inc. (NYSE:CSL), with a stake worth $55.7 million reported as of the end of September. Trailing AQR Capital Management was Alyeska Investment Group, which amassed a stake valued at $53.7 million. Two Sigma Advisors, Lodge Hill Capital, and Balyasny Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Carlisle Companies, Inc. (NYSE:CSL), around 9.25% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 5.67 percent of its 13F equity portfolio to CSL.

Seeing as Carlisle Companies, Inc. (NYSE:CSL) has experienced falling interest from hedge fund managers, logic holds that there exists a select few money managers that elected to cut their entire stakes last quarter. Interestingly, Richard S. Pzena’s Pzena Investment Management sold off the biggest position of the 750 funds monitored by Insider Monkey, valued at about $36.5 million in stock. Peter Algert and Kevin Coldiron’s fund, Algert Coldiron Investors, also dropped its stock, about $2.2 million worth. These transactions are interesting, as total hedge fund interest fell by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Carlisle Companies, Inc. (NYSE:CSL) but similarly valued. We will take a look at American Homes 4 Rent (NYSE:AMH), SEI Investments Company (NASDAQ:SEIC), The Toro Company (NYSE:TTC), and Chemed Corporation (NYSE:CHE). This group of stocks’ market values are similar to CSL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMH 21 177852 -2
SEIC 33 254738 4
TTC 24 675646 1
CHE 25 381017 3
Average 25.75 372313 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $372 million. That figure was $263 million in CSL’s case. SEI Investments Company (NASDAQ:SEIC) is the most popular stock in this table. On the other hand American Homes 4 Rent (NYSE:AMH) is the least popular one with only 21 bullish hedge fund positions. Carlisle Companies, Inc. (NYSE:CSL) 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately CSL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CSL investors were disappointed as the stock returned -4% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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