Hedge Funds Have Never Been Less Bullish On Air Products and Chemicals, Inc. (APD)

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not Air Products and Chemicals, Inc. (NYSE:APD) makes for a good investment right now.

Air Products and Chemicals, Inc. (NYSE:APD) investors should be aware of a decrease in hedge fund interest recently. APD was in 32 hedge funds’ portfolios at the end of the second quarter of 2019. There were 34 hedge funds in our database with APD holdings at the end of the previous quarter. Our calculations also showed that APD isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 2019 (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.

Jonathan Barrett Luminus Management

Jonathan Barrett of Luminus Management

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the latest hedge fund action encompassing Air Products and Chemicals, Inc. (NYSE:APD).

What does smart money think about Air Products and Chemicals, Inc. (NYSE:APD)?

Heading into the third quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards APD over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

No of Hedge Funds with APD Positions

Among these funds, Luminus Management held the most valuable stake in Air Products and Chemicals, Inc. (NYSE:APD), which was worth $153.9 million at the end of the second quarter. On the second spot was AQR Capital Management which amassed $76.4 million worth of shares. Moreover, Freshford Capital Management, D E Shaw, and Citadel Investment Group were also bullish on Air Products and Chemicals, Inc. (NYSE:APD), allocating a large percentage of their portfolios to this stock.

Judging by the fact that Air Products and Chemicals, Inc. (NYSE:APD) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that decided to sell off their full holdings by the end of the second quarter. At the top of the heap, Michael A. Price and Amos Meron’s Empyrean Capital Partners dumped the biggest position of the “upper crust” of funds followed by Insider Monkey, worth close to $118.1 million in stock. Vince Maddi and Shawn Brennan’s fund, SIR Capital Management, also dumped its stock, about $19.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Air Products and Chemicals, Inc. (NYSE:APD) but similarly valued. These stocks are Simon Property Group, Inc (NYSE:SPG), Walgreens Boots Alliance Inc (NASDAQ:WBA), Intercontinental Exchange Inc (NYSE:ICE), and Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG). This group of stocks’ market caps resemble APD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SPG 26 908545 -2
WBA 41 782849 8
ICE 35 1926137 0
SMFG 14 477204 4
Average 29 1023684 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1024 million. That figure was $506 million in APD’s case. Walgreens Boots Alliance Inc (NASDAQ:WBA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) is the least popular one with only 14 bullish hedge fund positions. Air Products and Chemicals, Inc. (NYSE:APD) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately APD wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on APD were disappointed as the stock returned -1.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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