Hedge Funds Are Dumping Illinois Tool Works Inc. (ITW)

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Illinois Tool Works Inc. (NYSE:ITW) to find out whether there were any major changes in hedge funds’ views.

Is Illinois Tool Works Inc. (NYSE:ITW) an outstanding investment right now? Hedge funds were becoming less confident. The number of bullish hedge fund positions went down by 7 in recent months. Illinois Tool Works Inc. (NYSE:ITW) was in 33 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 40. Our calculations also showed that ITW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to view the fresh hedge fund action regarding Illinois Tool Works Inc. (NYSE:ITW).

Do Hedge Funds Think ITW Is A Good Stock To Buy Now?

At first quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in ITW a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Illinois Tool Works Inc. (NYSE:ITW) was held by AQR Capital Management, which reported holding $187.3 million worth of stock at the end of December. It was followed by Markel Gayner Asset Management with a $72.5 million position. Other investors bullish on the company included Renaissance Technologies, Marshall Wace LLP, and PEAK6 Capital Management. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 1.96% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, setting aside 1 percent of its 13F equity portfolio to ITW.

Because Illinois Tool Works Inc. (NYSE:ITW) has experienced bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few hedgies who were dropping their full holdings by the end of the first quarter. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest investment of all the hedgies followed by Insider Monkey, comprising an estimated $29.3 million in stock. John Overdeck and David Siegel’s fund, Two Sigma Advisors, also sold off its stock, about $10.5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 7 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Illinois Tool Works Inc. (NYSE:ITW). We will take a look at Norfolk Southern Corp. (NYSE:NSC), KE Holdings Inc (NYSE:BEKE), Dell Technologies Inc. (NYSE:DELL), Brookfield Asset Management Inc. (NYSE:BAM), Westpac Banking Corporation (NYSE:WBK), Colgate-Palmolive Company (NYSE:CL), and The Sherwin-Williams Company (NYSE:SHW). This group of stocks’ market caps are similar to ITW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NSC 46 898621 2
BEKE 33 2308833 3
DELL 54 4834607 4
BAM 34 1388352 -4
WBK 3 35365 0
CL 48 2304590 2
SHW 51 2016614 2
Average 38.4 1969569 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.4 hedge funds with bullish positions and the average amount invested in these stocks was $1970 million. That figure was $412 million in ITW’s case. Dell Technologies Inc. (NYSE:DELL) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 3 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ITW is 52.2. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and surpassed the market again by 6 percentage points. Unfortunately ITW wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); ITW investors were disappointed as the stock returned 2.4% since the end of March (through 7/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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