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Hedge Funds Are Coming Back To Huntington Ingalls Industries Inc (HII)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Huntington Ingalls Industries Inc (NYSE:HII) and determine whether the smart money was really smart about this stock.

Is Huntington Ingalls Industries Inc (NYSE:HII) an excellent stock to buy now? Prominent investors were becoming hopeful. The number of bullish hedge fund positions inched up by 9 lately. Huntington Ingalls Industries Inc (NYSE:HII) was in 30 hedge funds’ portfolios at the end of June. The all time high for this statistics is 32. Our calculations also showed that HII isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 21 hedge funds in our database with HII positions at the end of the first quarter.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 56 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s view the latest hedge fund action surrounding Huntington Ingalls Industries Inc (NYSE:HII).

How are hedge funds trading Huntington Ingalls Industries Inc (NYSE:HII)?

At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards HII over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Huntington Ingalls Industries Inc (NYSE:HII). AQR Capital Management has a $119.6 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $35.8 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish comprise Israel Englander’s Millennium Management, D. E. Shaw’s D E Shaw and Steven Richman’s East Side Capital (RR Partners). In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Huntington Ingalls Industries Inc (NYSE:HII), around 3.14% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, setting aside 2.74 percent of its 13F equity portfolio to HII.

As one would reasonably expect, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in Huntington Ingalls Industries Inc (NYSE:HII). Arrowstreet Capital had $35.8 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $17.4 million investment in the stock during the quarter. The other funds with brand new HII positions are David Brown’s Hawk Ridge Management, Brandon Haley’s Holocene Advisors, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s check out hedge fund activity in other stocks similar to Huntington Ingalls Industries Inc (NYSE:HII). We will take a look at Universal Display Corporation (NASDAQ:OLED), XPO Logistics Inc (NYSE:XPO), News Corp (NASDAQ:NWS), The New York Times Company (NYSE:NYT), Aspen Technology, Inc. (NASDAQ:AZPN), Alleghany Corporation (NYSE:Y), and News Corp (NASDAQ:NWSA). This group of stocks’ market caps match HII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OLED 25 216895 1
XPO 40 2294370 4
NWS 16 32230 3
NYT 42 1853275 9
AZPN 28 878045 8
Y 31 270939 6
NWSA 24 342184 -4
Average 29.4 841134 3.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $841 million. That figure was $272 million in HII’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand News Corp (NASDAQ:NWS) is the least popular one with only 16 bullish hedge fund positions. Huntington Ingalls Industries Inc (NYSE:HII) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HII is 65. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately HII wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on HII were disappointed as the stock returned -15.3% 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.

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