How Illinois Tool Works Inc. (ITW) Stacks Up Against Netflix, Inc. (NFLX), Phillips 66 (PSX) and Other Peers

Earlier this year, many hedge funds were holding a larger percentage of their assets in cash than at any other time in recent memory, as fears that the market was due for a correction abounded. This led to many small-cap stocks being hit hard, as hedge funds, which tend to be some of their staunchest backers, liquidated their holdings. Now however, hedge funds appear to be growing more confident and putting their money back into equities, which has led to small-cap stocks taking off, with the Russell 2000 ETF (IWM) having outperformed the S&P 500 ETF (SPY) by more than 10 percentage points since the end of June. In this article, we’ll see how this large shift in hedge fund activity impacted Illinois Tool Works Inc. (NYSE:ITW) .

Illinois Tool Works Inc. (NYSE:ITW) was in 33 hedge funds’ portfolios at the end of the third quarter of 2016. ITW investors should pay attention to an increase in support from the world’s most successful money managers in recent months. There were 32 hedge funds in our database with ITW positions at the end of the previous quarter. At the end of this article we will also compare ITW to other stocks including Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Bank of Montreal (USA) (NYSE:BMO), and Netflix, Inc. (NASDAQ:NFLX) to get a better sense of its popularity.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

What have hedge funds been doing with Illinois Tool Works Inc. (NYSE:ITW)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a rise of 3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ITW over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the largest position in Illinois Tool Works Inc. (NYSE:ITW), worth close to $168.2 million, corresponding to 1% of its total 13F portfolio. Coming in second is John W. Rogers of Ariel Investments, with a $96 million position; 1.2% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism encompass Cliff Asness’ AQR Capital Management, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, some big names have jumped into Illinois Tool Works Inc. (NYSE:ITW) headfirst. Adage Capital Management, led by Phill Gross and Robert Atchinson, initiated the largest position in Illinois Tool Works Inc. (NYSE:ITW). Adage Capital Management had $45.9 million invested in the company at the end of the quarter. Gregg Moskowitz’s Interval Partners also initiated a $18 million position during the quarter. The other funds with brand new ITW positions are Ken Griffin’s Citadel Investment Group, Steve Cohen’s Point72 Asset Management, and D. E. Shaw’s D E Shaw.

Let’s now take a look at hedge fund activity in other stocks similar to Illinois Tool Works Inc. (NYSE:ITW). These stocks are Regeneron Pharmaceuticals Inc (NASDAQ:REGN), Bank of Montreal (USA) (NYSE:BMO), Netflix, Inc. (NASDAQ:NFLX), and Phillips 66 (NYSE:PSX). All of these stocks’ market caps match ITW’s market cap.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $2.97 billion. That figure was $703 million in ITW’s case. Netflix, Inc. (NASDAQ:NFLX) is the most popular stock in this table. On the other hand Bank of Montreal (USA) (NYSE:BMO) is the least popular one with only 16 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NFLX might be a better candidate to consider taking a long position in.

Disclosure: None