Hedge Funds Have Never Been This Bullish On United Technologies Corporation (UTX)

Is United Technologies Corporation (NYSE:UTX) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

United Technologies Corporation (NYSE:UTX) investors should be aware of an increase in enthusiasm from smart money of late. UTX was in 81 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 74 hedge funds in our database with UTX positions at the end of the previous quarter. Our calculations also showed that UTX ranks 29th among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 41 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.


Dan Loeb of Third Point

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned nearly 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a peek at the recent hedge fund action encompassing United Technologies Corporation (NYSE:UTX).

Hedge fund activity in United Technologies Corporation (NYSE:UTX)

Heading into the first quarter of 2020, a total of 81 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UTX over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Third Point held the most valuable stake in United Technologies Corporation (NYSE:UTX), which was worth $779.8 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $714 million worth of shares. Citadel Investment Group, Adage Capital Management, and Diamond Hill Capital 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 One Fin Capital Management allocated the biggest weight to United Technologies Corporation (NYSE:UTX), around 10.04% of its 13F portfolio. Manikay Partners is also relatively very bullish on the stock, setting aside 9.68 percent of its 13F equity portfolio to UTX.

Consequently, key money managers have been driving this bullishness. Ako Capital, managed by Nicolai Tangen, initiated the biggest position in United Technologies Corporation (NYSE:UTX). Ako Capital had $276.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $141.2 million position during the quarter. The other funds with new positions in the stock are Frank Brosens’s Taconic Capital, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s also examine hedge fund activity in other stocks similar to United Technologies Corporation (NYSE:UTX). We will take a look at BP plc (NYSE:BP), Paypal Holdings Inc (NASDAQ:PYPL), Honeywell International Inc. (NYSE:HON), and Eli Lilly and Company (NYSE:LLY). This group of stocks’ market caps resemble UTX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BP 40 1634365 1
PYPL 126 6225698 22
HON 55 2282262 -3
LLY 43 1493296 -1
Average 66 2908905 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 66 hedge funds with bullish positions and the average amount invested in these stocks was $2909 million. That figure was $7022 million in UTX’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand BP plc (NYSE:BP) is the least popular one with only 40 bullish hedge fund positions. United Technologies Corporation (NYSE:UTX) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks also gained 0.1% in 2020 through March 2nd and beat the market by 4.1 percentage points. Unfortunately UTX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UTX were disappointed as the stock returned -10.1% during the same time period 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.

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