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Hedge Funds Are Dumping ITT Inc. (ITT)

Is ITT Inc. (NYSE:ITT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

ITT Inc. (NYSE:ITT) was in 19 hedge funds’ portfolios at the end of September. ITT has seen a decrease in hedge fund sentiment in recent months. There were 23 hedge funds in our database with ITT holdings at the end of the previous quarter. Our calculations also showed that ITT isn’t among the 30 most popular stocks among hedge funds.

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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.

Mario Gabelli of GAMCO Investors

Mario Gabelli of GAMCO Investors

Let’s check out the fresh hedge fund action regarding ITT Inc. (NYSE:ITT).

What does the smart money think about ITT Inc. (NYSE:ITT)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the second quarter of 2018. By comparison, 17 hedge funds held shares or bullish call options in ITT heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ITT

More specifically, AQR Capital Management was the largest shareholder of ITT Inc. (NYSE:ITT), with a stake worth $108.1 million reported as of the end of September. Trailing AQR Capital Management was Adage Capital Management, which amassed a stake valued at $96.8 million. GAMCO Investors, Scopus Asset Management, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Since ITT Inc. (NYSE:ITT) has witnessed bearish sentiment from hedge fund managers, it’s easy to see that there lies a certain “tier” of fund managers who sold off their entire stakes last quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the biggest position of the 700 funds followed by Insider Monkey, totaling close to $6.3 million in stock. Clint Carlson’s fund, Carlson Capital, also sold off its stock, about $5.2 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to ITT Inc. (NYSE:ITT). We will take a look at Morningstar, Inc. (NASDAQ:MORN), Synovus Financial Corp. (NYSE:SNV), Antero Midstream Partners LP (NYSE:AM), and The Howard Hughes Corporation (NYSE:HHC). All of these stocks’ market caps match ITT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MORN 19 204386 2
SNV 32 753690 3
AM 11 51766 4
HHC 19 715682 0
Average 20.25 431381 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $431 million. That figure was $338 million in ITT’s case. Synovus Financial Corp. (NYSE:SNV) is the most popular stock in this table. On the other hand Antero Midstream Partners LP (NYSE:AM) is the least popular one with only 11 bullish hedge fund positions. ITT Inc. (NYSE:ITT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SNV might be a better candidate to consider a long position.

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

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