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Hedge Funds Bailed Out of Polaris Industries Inc. (PII) At The Wrong Time

Concerns over rising interest rates and expected further rate increases have hit several stocks hard during the fourth quarter. NASDAQ and Russell 2000 indices were already in correction territory. More importantly, Russell 2000 ETF (IWM) underperformed the larger S&P 500 ETF (SPY) by nearly 7 percentage points in the fourth quarter. Hedge funds and institutional investors tracked by Insider Monkey usually invest a disproportionate amount of their portfolios in smaller cap stocks. We have been receiving indications that hedge funds were paring back their overall exposure and this is one of the factors behind the recent movements in major indices. In this article, we will take a closer look at hedge fund sentiment towards Polaris Industries Inc. (NYSE:PII).

Is Polaris Industries Inc. (NYSE:PII) a buy right now? Hedge funds are in a bearish mood. The number of long hedge fund positions retreated by 2 in recent months. Our calculations also showed that PII isn’t among the 30 most popular stocks among hedge funds.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Dmitry Balyasny

Let’s take a gander at the recent hedge fund action regarding Polaris Industries Inc. (NYSE:PII).

What does the smart money think about Polaris Industries Inc. (NYSE:PII)?

Heading into the first quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PII over the last 14 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with PII Positions

More specifically, Citadel Investment Group was the largest shareholder of Polaris Industries Inc. (NYSE:PII), with a stake worth $55.7 million reported as of the end of September. Trailing Citadel Investment Group was Balyasny Asset Management, which amassed a stake valued at $16.8 million. Arrowstreet Capital, D E Shaw, and Holocene Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Since Polaris Industries Inc. (NYSE:PII) has witnessed bearish sentiment from the smart money, we can see that there were a few fund managers that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Michael Platt and William Reeves’s BlueCrest Capital Mgmt. cut the largest stake of all the hedgies watched by Insider Monkey, valued at about $3 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund said goodbye to about $2.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Polaris Industries Inc. (NYSE:PII). We will take a look at Xerox Corporation (NYSE:XRX), ICU Medical, Inc. (NASDAQ:ICUI), NewMarket Corporation (NYSE:NEU), and Six Flags Entertainment Corp (NYSE:SIX). All of these stocks’ market caps are closest to PII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XRX 44 888811 7
ICUI 20 327916 -15
NEU 16 64634 3
SIX 23 720468 -2
Average 25.75 500457 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $500 million. That figure was $113 million in PII’s case. Xerox Corporation (NYSE:XRX) is the most popular stock in this table. On the other hand NewMarket Corporation (NYSE:NEU) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Polaris Industries Inc. (NYSE:PII) is even less popular than NEU. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A small number of hedge funds were also right about betting on PII as the stock returned 25.4% and outperformed the market as well.

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

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