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Hedge Funds Are Betting On Johnson Controls International plc (JCI)

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Johnson Controls International plc (NYSE:JCI).

Is Johnson Controls International plc (NYSE:JCI) the right pick for your portfolio? The smart money is in a bullish mood. The number of long hedge fund positions rose by 13 in recent months. Our calculations also showed that JCI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). JCI was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 24 hedge funds in our database with JCI holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Phill Gross of Adage Capital Management

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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s view the latest hedge fund action regarding Johnson Controls International plc (NYSE:JCI).

What have hedge funds been doing with Johnson Controls International plc (NYSE:JCI)?

Heading into the first quarter of 2020, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 54% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in JCI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, D E Shaw was the largest shareholder of Johnson Controls International plc (NYSE:JCI), with a stake worth $154.6 million reported as of the end of September. Trailing D E Shaw was Balyasny Asset Management, which amassed a stake valued at $141.8 million. Arrowstreet Capital, Adage Capital Management, and Renaissance Technologies 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 Scopia Capital allocated the biggest weight to Johnson Controls International plc (NYSE:JCI), around 5.92% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.84 percent of its 13F equity portfolio to JCI.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the most outsized position in Johnson Controls International plc (NYSE:JCI). Balyasny Asset Management had $141.8 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $116.7 million investment in the stock during the quarter. The other funds with brand new JCI positions are Renaissance Technologies, Ray Dalio’s Bridgewater Associates, and Alexander Mitchell’s Scopus Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Johnson Controls International plc (NYSE:JCI) but similarly valued. We will take a look at Electronic Arts Inc. (NASDAQ:EA), Hilton Worldwide Holdings Inc (NYSE:HLT), ONEOK, Inc. (NYSE:OKE), and Zimmer Biomet Holdings Inc (NYSE:ZBH). This group of stocks’ market valuations match JCI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EA 68 2359890 -2
HLT 57 4450016 4
OKE 31 223513 5
ZBH 64 1443573 15
Average 55 2119248 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 55 hedge funds with bullish positions and the average amount invested in these stocks was $2119 million. That figure was $1120 million in JCI’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand ONEOK, Inc. (NYSE:OKE) is the least popular one with only 31 bullish hedge fund positions. Johnson Controls International plc (NYSE:JCI) is not the least popular stock in this group but hedge fund interest is still below average. 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. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on JCI, though not to the same extent, as the stock returned -13.5% during the same time period and outperformed the market.

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

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