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Hedge Funds Are Done Buying IHS Markit Ltd. (INFO)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards IHS Markit Ltd. (NYSE:INFO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

IHS Markit Ltd. (NYSE:INFO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 44 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that INFO 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). At the end of this article we will also compare INFO to other stocks including Canadian Imperial Bank of Commerce (NYSE:CM), EOG Resources Inc (NYSE:EOG), and Royalty Pharma plc (NASDAQ:RPRX) to get a better sense of its popularity.

Video: 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Sahm Adrangi Kerrisdale Capital

Sahm Adrangi of Kerrisdale Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. 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. Keeping this in mind we’re going to take a gander at the recent hedge fund action encompassing IHS Markit Ltd. (NYSE:INFO).

Hedge fund activity in IHS Markit Ltd. (NYSE:INFO)

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the first quarter of 2020. By comparison, 28 hedge funds held shares or bullish call options in INFO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in IHS Markit Ltd. (NYSE:INFO) was held by Select Equity Group, which reported holding $474.2 million worth of stock at the end of September. It was followed by Farallon Capital with a $295.2 million position. Other investors bullish on the company included Junto Capital Management, Citadel Investment Group, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Sunriver Management allocated the biggest weight to IHS Markit Ltd. (NYSE:INFO), around 5.86% of its 13F portfolio. Corsair Capital Management is also relatively very bullish on the stock, earmarking 5.21 percent of its 13F equity portfolio to INFO.

Because IHS Markit Ltd. (NYSE:INFO) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds who were dropping their positions entirely last quarter. At the top of the heap, Renaissance Technologies sold off the biggest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $35.1 million in stock, and Ravee Mehta’s Nishkama Capital was right behind this move, as the fund cut about $11.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as IHS Markit Ltd. (NYSE:INFO) but similarly valued. We will take a look at Canadian Imperial Bank of Commerce (NYSE:CM), EOG Resources Inc (NYSE:EOG), Royalty Pharma plc (NASDAQ:RPRX), Seattle Genetics, Inc. (NASDAQ:SGEN), Synopsys, Inc. (NASDAQ:SNPS), Brown-Forman Corporation (NYSE:BF), and Chipotle Mexican Grill, Inc. (NYSE:CMG). This group of stocks’ market caps match INFO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CM 6 158840 -4
EOG 45 696070 1
RPRX 24 2716389 24
SGEN 38 8430115 11
SNPS 34 931266 3
BF 28 521945 0
CMG 41 3780591 -7
Average 30.9 2462174 4

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.9 hedge funds with bullish positions and the average amount invested in these stocks was $2462 million. That figure was $1532 million in INFO’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 6 bullish hedge fund positions. IHS Markit Ltd. (NYSE:INFO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for INFO is 83.7. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately INFO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on INFO were disappointed as the stock returned 6.1% 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.