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Did Hedge Funds Make The Right Call On Polaris Inc. (PII) ?

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 Polaris Inc. (NYSE:PII) and determine whether hedge funds skillfully traded this stock.

Polaris Inc. (NYSE:PII) was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. PII has seen a decrease in hedge fund sentiment in recent months. There were 26 hedge funds in our database with PII holdings at the end of the previous quarter. Our calculations also showed that PII 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Clint Carlson of Carlson Capital

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. Now we’re going to analyze the recent hedge fund action surrounding Polaris Inc. (NYSE:PII).

What have hedge funds been doing with Polaris Inc. (NYSE:PII)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the fourth quarter of 2019. By comparison, 16 hedge funds held shares or bullish call options in PII a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is PII A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Polaris Inc. (NYSE:PII). Citadel Investment Group has a $44.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $39.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism comprise Cliff Asness’s AQR Capital Management, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Shellback Capital allocated the biggest weight to Polaris Inc. (NYSE:PII), around 0.59% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, dishing out 0.32 percent of its 13F equity portfolio to PII.

Since Polaris Inc. (NYSE:PII) has witnessed bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who sold off their positions entirely by the end of the first quarter. It’s worth mentioning that Robert Bishop’s Impala Asset Management sold off the biggest investment of all the hedgies watched by Insider Monkey, valued at about $17.3 million in stock. Larry Foley and Paul Farrell’s fund, Bronson Point Partners, also dropped its stock, about $9.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Polaris Inc. (NYSE:PII) but similarly valued. These stocks are Selective Insurance Group (NASDAQ:SIGI), BlackLine, Inc. (NASDAQ:BL), Texas Pacific Land Trust (NYSE:TPL), and Wyndham Hotels & Resorts, Inc. (NYSE:WH). This group of stocks’ market values are similar to PII’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIGI 15 70570 -10
BL 18 175505 1
TPL 14 694383 -3
WH 31 501047 -13
Average 19.5 360376 -6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $157 million in PII’s case. Wyndham Hotels & Resorts, Inc. (NYSE:WH) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 14 bullish hedge fund positions. Polaris Inc. (NYSE:PII) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 15.5 percentage points. Hedge funds were also right about betting on PII as the stock returned 93.5% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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