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Hedge Funds Are Souring On nVent Electric plc (NVT)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding nVent Electric plc (NYSE:NVT) and determine whether hedge funds had an edge regarding this stock.

nVent Electric plc (NYSE:NVT) investors should pay attention to a decrease in enthusiasm from smart money lately. nVent Electric plc (NYSE:NVT) was in 27 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. Our calculations also showed that NVT 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).

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

According to most stock holders, hedge funds are seen as slow, old financial vehicles of years past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the aristocrats of this group, around 850 funds. It is estimated that this group of investors orchestrate bulk of all hedge funds’ total asset base, and by shadowing their unrivaled picks, Insider Monkey has uncovered several investment strategies that have historically surpassed the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

TRIAN PARTNERS

Nelson Peltz of Trian Partners

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. 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. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a glance at the fresh hedge fund action surrounding nVent Electric plc (NYSE:NVT).

How have hedgies been trading nVent Electric plc (NYSE:NVT)?

At the end of June, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NVT over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Trian Partners was the largest shareholder of nVent Electric plc (NYSE:NVT), with a stake worth $232.1 million reported as of the end of September. Trailing Trian Partners was Citadel Investment Group, which amassed a stake valued at $43.6 million. D E Shaw, Adage Capital Management, and Millennium Management 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 Trian Partners allocated the biggest weight to nVent Electric plc (NYSE:NVT), around 4.81% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 1.01 percent of its 13F equity portfolio to NVT.

Judging by the fact that nVent Electric plc (NYSE:NVT) has faced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes by the end of the second quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management said goodbye to the largest position of the 750 funds tracked by Insider Monkey, worth an estimated $8.8 million in stock, and David Harding’s Winton Capital Management was right behind this move, as the fund dropped about $5 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to nVent Electric plc (NYSE:NVT). These stocks are Coherent, Inc. (NASDAQ:COHR), Valley National Bancorp (NASDAQ:VLY), Alarm.com Holdings Inc (NASDAQ:ALRM), Selective Insurance Group, Inc. (NASDAQ:SIGI), VEON Ltd. (NASDAQ:VEON), Stamps.com Inc. (NASDAQ:STMP), and iRhythm Technologies, Inc. (NASDAQ:IRTC). This group of stocks’ market valuations resemble NVT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COHR 32 208020 9
VLY 17 25863 -5
ALRM 24 225769 1
SIGI 13 48566 -2
VEON 6 21115 -2
STMP 30 566203 1
IRTC 21 160969 6
Average 20.4 179501 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $428 million in NVT’s case. Coherent, Inc. (NASDAQ:COHR) is the most popular stock in this table. On the other hand VEON Ltd. (NASDAQ:VEON) is the least popular one with only 6 bullish hedge fund positions. nVent Electric plc (NYSE:NVT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVT is 71.3. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately NVT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NVT were disappointed as the stock returned -6.7% 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.