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Did Hedge Funds Make The Right Call On Ingersoll Rand Inc. (IR) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Ingersoll Rand Inc. (NYSE:IR) and determine whether hedge funds had an edge regarding this stock.

Ingersoll Rand Inc. (NYSE:IR) has seen a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that IR 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Andreas Halvorsen

Andreas Halvorsen of Viking Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Ingersoll Rand Inc. (NYSE:IR).

What have hedge funds been doing with Ingersoll Rand Inc. (NYSE:IR)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the fourth quarter of 2019. On the other hand, there were a total of 39 hedge funds with a bullish position in IR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Viking Global held the most valuable stake in Ingersoll Rand Inc. (NYSE:IR), which was worth $297.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $45 million worth of shares. Millennium Management, Goodnow Investment Group, and D E Shaw 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 Goodnow Investment Group allocated the biggest weight to Ingersoll Rand Inc. (NYSE:IR), around 5.67% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, designating 2.92 percent of its 13F equity portfolio to IR.

Judging by the fact that Ingersoll Rand Inc. (NYSE:IR) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds that decided to sell off their entire stakes last quarter. It’s worth mentioning that David Blood and Al Gore’s Generation Investment Management cut the largest stake of the 750 funds followed by Insider Monkey, valued at close to $333.1 million in stock, and Ian Simm’s Impax Asset Management was right behind this move, as the fund cut about $140 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 14 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Ingersoll Rand Inc. (NYSE:IR). We will take a look at CenturyLink, Inc. (NYSE:CTL), Brown & Brown, Inc. (NYSE:BRO), EPAM Systems Inc (NYSE:EPAM), and Hess Corporation (NYSE:HES). This group of stocks’ market values are closest to IR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTL 34 774832 0
BRO 26 585823 3
EPAM 27 338859 -1
HES 28 253381 -6
Average 28.75 488224 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $488 million. That figure was $490 million in IR’s case. CenturyLink, Inc. (NYSE:CTL) is the most popular stock in this table. On the other hand Brown & Brown, Inc. (NYSE:BRO) is the least popular one with only 26 bullish hedge fund positions. Ingersoll Rand Inc. (NYSE:IR) 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. 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 but beat the market by 15.5 percentage points. Unfortunately IR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on IR were disappointed as the stock returned 15.4% 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.