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

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Polaris Inc. (NYSE:PII) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Polaris Inc. (NYSE:PII) a cheap investment now? Prominent investors were becoming hopeful. The number of bullish hedge fund positions rose by 10 recently. Polaris Inc. (NYSE:PII) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that PII isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 24 hedge funds in our database with PII holdings at the end of March.

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 56 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.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to review the fresh hedge fund action surrounding Polaris Inc. (NYSE:PII).

How are hedge funds trading Polaris Inc. (NYSE:PII)?

Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the first quarter of 2020. By comparison, 24 hedge funds held shares or bullish call options in PII a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in Polaris Inc. (NYSE:PII), worth close to $78.4 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $47.5 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions include Anand Parekh’s Alyeska Investment Group, Ken Fisher’s Fisher Asset Management and Kevin Kuebler and Ming Lam’s Silver Heights Capital Management. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to Polaris Inc. (NYSE:PII), around 14.43% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, designating 4.75 percent of its 13F equity portfolio to PII.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Fisher Asset Management, managed by Ken Fisher, assembled the biggest position in Polaris Inc. (NYSE:PII). Fisher Asset Management had $37.9 million invested in the company at the end of the quarter. Kevin Kuebler and Ming Lam’s Silver Heights Capital Management also made a $29.7 million investment in the stock during the quarter. The following funds were also among the new PII investors: Karthik Sarma’s SRS Investment Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Polaris Inc. (NYSE:PII) but similarly valued. These stocks are Inphi Corporation (NYSE:IPHI), Autoliv Inc. (NYSE:ALV), HD Supply Holdings Inc (NASDAQ:HDS), Apartment Investment and Management Co. (NYSE:AIV), AppFolio Inc (NASDAQ:APPF), Zions Bancorporation, National Association (NASDAQ:ZION), and Ingredion Incorporated (NYSE:INGR). This group of stocks’ market caps are closest to PII’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IPHI 46 643116 10
ALV 22 542948 7
HDS 44 992771 4
AIV 24 488634 3
APPF 21 400415 2
ZION 24 66065 -9
INGR 22 226529 4
Average 29 480068 3

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 $480 million. That figure was $427 million in PII’s case. Inphi Corporation (NYSE:IPHI) is the most popular stock in this table. On the other hand AppFolio Inc (NASDAQ:APPF) is the least popular one with only 21 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. Our overall hedge fund sentiment score for PII is 66. 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 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately PII wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PII were disappointed as the stock returned 9.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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