Hedge Funds Have Never Been This Bullish On Illinois Tool Works Inc. (ITW)

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of June 30th. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Illinois Tool Works Inc. (NYSE:ITW).

Is Illinois Tool Works Inc. (NYSE:ITW) an exceptional investment now? Hedge funds were in an optimistic mood. The number of long hedge fund bets inched up by 12 recently. Illinois Tool Works Inc. (NYSE:ITW) was in 45 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 40. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ITW isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by 79 percentage points since March 2017 (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.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Illinois Tool Works Inc. (NYSE:ITW).

Do Hedge Funds Think ITW Is A Good Stock To Buy Now?

At the end of June, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 36% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in ITW a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ITW A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in Illinois Tool Works Inc. (NYSE:ITW), which was worth $186.9 million at the end of the second quarter. On the second spot was Millennium Management which amassed $129.4 million worth of shares. Markel Gayner Asset Management, Renaissance Technologies, and Citadel Investment Group 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 Arjuna Capital allocated the biggest weight to Illinois Tool Works Inc. (NYSE:ITW), around 1.78% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, earmarking 1 percent of its 13F equity portfolio to ITW.

As one would reasonably expect, key hedge funds have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, initiated the largest position in Illinois Tool Works Inc. (NYSE:ITW). Bridgewater Associates had $19.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and David Harding’s Winton Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Illinois Tool Works Inc. (NYSE:ITW) but similarly valued. These stocks are Capital One Financial Corp. (NYSE:COF), Illumina, Inc. (NASDAQ:ILMN), Equinor ASA (NYSE:EQNR), Colgate-Palmolive Company (NYSE:CL), The Blackstone Group Inc. (NYSE:BX), HCA Healthcare Inc (NYSE:HCA), and ABB Ltd (NYSE:ABB). This group of stocks’ market caps are similar to ITW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COF 64 4053972 5
ILMN 51 1973287 -1
EQNR 11 88633 3
CL 58 2368869 10
BX 54 2080104 5
HCA 60 2695782 -2
ABB 15 658036 4
Average 44.7 1988383 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $1988 million. That figure was $658 million in ITW’s case. Capital One Financial Corp. (NYSE:COF) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 11 bullish hedge fund positions. Illinois Tool Works Inc. (NYSE:ITW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ITW is 72.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and beat the market again by 5.6 percentage points. Unfortunately ITW wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on ITW were disappointed as the stock returned -6.9% since the end of June (through 10/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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