Hedge Funds Have Never Been This Bullish On Polaris Inc. (PII)

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Polaris Inc. (NYSE:PII).

Polaris Inc. (NYSE:PII) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. PII was in 24 hedge funds’ portfolios at the end of June. There were 16 hedge funds in our database with PII holdings at the end of the previous quarter. Our calculations also showed that PII isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Dmitry Balyasny

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. Let’s take a look at the key hedge fund action surrounding Polaris Inc. (NYSE:PII).

What have hedge funds been doing with Polaris Inc. (NYSE:PII)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PII over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with PII Positions

The largest stake in Polaris Inc. (NYSE:PII) was held by Citadel Investment Group, which reported holding $65.6 million worth of stock at the end of March. It was followed by Interval Partners with a $45.4 million position. Other investors bullish on the company included Interval Partners, Balyasny Asset Management, and Arrowstreet Capital.

As industrywide interest jumped, some big names have been driving this bullishness. Interval Partners, managed by Gregg Moskowitz, created the most valuable call position in Polaris Inc. (NYSE:PII). Interval Partners had $42.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $30 million position during the quarter. The following funds were also among the new PII investors: Anthony Joseph Vaccarino’s North Fourth Asset Management, Elise Di Vincenzo Crumbine’s Stormborn Capital Management, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Polaris Inc. (NYSE:PII) but similarly valued. These stocks are BOK Financial Corporation (NASDAQ:BOKF), Paylocity Holding Corporation (NASDAQ:PCTY), JBG SMITH Properties (NYSE:JBGS), and Huazhu Group Limited (NASDAQ:HTHT). This group of stocks’ market values resemble PII’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOKF 19 185832 3
PCTY 28 213289 4
JBGS 17 291239 0
HTHT 14 164741 0
Average 19.5 213775 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $244 million in PII’s case. Paylocity Holding Corporation (NASDAQ:PCTY) is the most popular stock in this table. On the other hand Huazhu Group Limited (NASDAQ:HTHT) is the least popular one with only 14 bullish hedge fund positions. Polaris Inc. (NYSE:PII) 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 PII wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PII were disappointed as the stock returned -2.8% 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 (view the video below) 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.