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Hedge Funds Can’t Stop Buying Pentair plc (PNR)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Pentair plc (NYSE:PNR) and determine whether hedge funds skillfully traded this stock.

Is Pentair plc (NYSE:PNR) a splendid investment now? Hedge funds were becoming hopeful. The number of long hedge fund positions rose by 5 in recent months. Pentair plc (NYSE:PNR) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PNR 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). There were 29 hedge funds in our database with PNR positions at the end of the first quarter.

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

In the eyes of most stock holders, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are more than 8000 funds trading at present, Our experts look at the top tier of this group, approximately 850 funds. It is estimated that this group of investors command the lion’s share of the hedge fund industry’s total asset base, and by shadowing their first-class stock picks, Insider Monkey has identified several investment strategies that have historically surpassed the market. Insider Monkey’s flagship short hedge fund strategy outstripped 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 .

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar 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 let’s review the key hedge fund action encompassing Pentair plc (NYSE:PNR).

What does smart money think about Pentair plc (NYSE:PNR)?

At the end of the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PNR over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ian Simm’s Impax Asset Management has the most valuable position in Pentair plc (NYSE:PNR), worth close to $319.9 million, comprising 3.3% of its total 13F portfolio. Sitting at the No. 2 spot is Balyasny Asset Management, managed by Dmitry Balyasny, which holds a $35.6 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Pentair plc (NYSE:PNR), around 3.28% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, earmarking 2.37 percent of its 13F equity portfolio to PNR.

Consequently, some big names were breaking ground themselves. Fairpointe Capital, managed by Thyra Zerhusen, created the most valuable position in Pentair plc (NYSE:PNR). Fairpointe Capital had $16.3 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also made a $6 million investment in the stock during the quarter. The other funds with brand new PNR positions are Andrew Byington’s Appian Way Asset Management, Michael Gelband’s ExodusPoint Capital, and Ray Dalio’s Bridgewater Associates.

Let’s now take a look at hedge fund activity in other stocks similar to Pentair plc (NYSE:PNR). We will take a look at Bruker Corporation (NASDAQ:BRKR), TIM Participacoes SA (NYSE:TSU), Anaplan, Inc. (NYSE:PLAN), MKS Instruments, Inc. (NASDAQ:MKSI), PRA Health Sciences Inc (NASDAQ:PRAH), Herbalife Nutrition Ltd. (NYSE:HLF), and LPL Financial Holdings Inc (NASDAQ:LPLA). This group of stocks’ market values are closest to PNR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRKR 28 188530 7
TSU 15 173822 4
PLAN 49 2181797 -2
MKSI 32 329943 5
PRAH 33 169611 4
HLF 36 3052037 5
LPLA 43 892669 10
Average 33.7 998344 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $998 million. That figure was $528 million in PNR’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 15 bullish hedge fund positions. Pentair plc (NYSE:PNR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PNR is 67.9. 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. 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 still beat the market by 23.2 percentage points. Hedge funds were also right about betting on PNR as the stock returned 19.4% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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