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Hedge Fund Favorites vs. Roper Technologies, Inc. (ROP) In 2019

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Roper Technologies, Inc. (NYSE:ROP).

Roper Technologies, Inc. (NYSE:ROP) has seen an increase in hedge fund interest of late. ROP was in 37 hedge funds’ portfolios at the end of the third quarter of 2019. There were 35 hedge funds in our database with ROP positions at the end of the previous quarter. Our calculations also showed that ROP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to go over the new hedge fund action regarding Roper Technologies, Inc. (NYSE:ROP).

Hedge fund activity in Roper Technologies, Inc. (NYSE:ROP)

Heading into the fourth quarter of 2019, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the second quarter of 2019. On the other hand, there were a total of 32 hedge funds with a bullish position in ROP a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

The largest stake in Roper Technologies, Inc. (NYSE:ROP) was held by Akre Capital Management, which reported holding $558.9 million worth of stock at the end of September. It was followed by Millennium Management with a $85.5 million position. Other investors bullish on the company included Point72 Asset Management, Waratah Capital Advisors, and Bristol Gate Capital Partners. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Roper Technologies, Inc. (NYSE:ROP), around 5.95% of its 13F portfolio. Lansing Management is also relatively very bullish on the stock, designating 5.77 percent of its 13F equity portfolio to ROP.

As aggregate interest increased, some big names were leading the bulls’ herd. Maverick Capital, managed by Lee Ainslie, created the most outsized position in Roper Technologies, Inc. (NYSE:ROP). Maverick Capital had $0.9 million invested in the company at the end of the quarter. Ray Dalio’s Bridgewater Associates also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management and Parvinder Thiara’s Athanor Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Roper Technologies, Inc. (NYSE:ROP) but similarly valued. These stocks are China Telecom Corporation Limited (NYSE:CHA), Welltower Inc. (NYSE:WELL), Canadian Imperial Bank of Commerce (NYSE:CM), and Ford Motor Company (NYSE:F). This group of stocks’ market values are closest to ROP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHA 8 24410 1
WELL 15 364970 -2
CM 15 220104 3
F 35 1152594 -4
Average 18.25 440520 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $441 million. That figure was $1045 million in ROP’s case. Ford Motor Company (NYSE:F) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Roper Technologies, Inc. (NYSE:ROP) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ROP, though not to the same extent, as the stock returned 33.7% during the same period and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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