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Hedge Funds Keep Selling Carlisle Companies, Inc. (CSL)

In this article we will check out the progression of hedge fund sentiment towards Carlisle Companies, Inc. (NYSE:CSL) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Carlisle Companies, Inc. (NYSE:CSL) a splendid stock to buy now? The best stock pickers are becoming less hopeful. The number of bullish hedge fund positions were trimmed by 3 in recent months. Our calculations also showed that CSL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). CSL was in 23 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with CSL positions at the end of the previous quarter.

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

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 S&P 500 ETFs by more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the key hedge fund action encompassing Carlisle Companies, Inc. (NYSE:CSL).

How are hedge funds trading Carlisle Companies, Inc. (NYSE:CSL)?

At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in CSL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Cliff Asness’s AQR Capital Management has the most valuable position in Carlisle Companies, Inc. (NYSE:CSL), worth close to $55.7 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Anand Parekh of Alyeska Investment Group, with a $53.7 million position; 1.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish consist of John Overdeck and David Siegel’s Two Sigma Advisors, Clint Murray’s Lodge Hill Capital and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Carlisle Companies, Inc. (NYSE:CSL), around 9.25% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, setting aside 5.67 percent of its 13F equity portfolio to CSL.

Judging by the fact that Carlisle Companies, Inc. (NYSE:CSL) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers that slashed their positions entirely heading into Q4. At the top of the heap, Richard S. Pzena’s Pzena Investment Management dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $36.5 million in stock, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors was right behind this move, as the fund said goodbye to about $2.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Carlisle Companies, Inc. (NYSE:CSL). We will take a look at American Homes 4 Rent (NYSE:AMH), SEI Investments Company (NASDAQ:SEIC), The Toro Company (NYSE:TTC), and Chemed Corporation (NYSE:CHE). This group of stocks’ market valuations are closest to CSL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMH 21 177852 -2
SEIC 33 254738 4
TTC 24 675646 1
CHE 25 381017 3
Average 25.75 372313 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $372 million. That figure was $263 million in CSL’s case. SEI Investments Company (NASDAQ:SEIC) is the most popular stock in this table. On the other hand American Homes 4 Rent (NYSE:AMH) is the least popular one with only 21 bullish hedge fund positions. Carlisle Companies, Inc. (NYSE:CSL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.9% in 2020 through June 10th and surpassed the market by 14.2 percentage points. Unfortunately CSL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); CSL investors were disappointed as the stock returned 3.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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