At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards IDEX Corporation (NYSE:IEX) at the end of the second quarter and determine whether the smart money was really smart about this stock.
IDEX Corporation (NYSE:IEX) investors should pay attention to a decrease in support from the world’s most elite money managers in recent months. IDEX Corporation (NYSE:IEX) was in 31 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 33. Our calculations also showed that IEX 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).
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.
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. 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. Now we’re going to take a look at the fresh hedge fund action regarding IDEX Corporation (NYSE:IEX).
What does smart money think about IDEX Corporation (NYSE:IEX)?
Heading into the third quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IEX over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of IDEX Corporation (NYSE:IEX), with a stake worth $317.3 million reported as of the end of September. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $48.2 million. Echo Street Capital Management, Balyasny Asset Management, and Millennium Management 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 Impax Asset Management allocated the biggest weight to IDEX Corporation (NYSE:IEX), around 3.26% of its 13F portfolio. Jade Capital Advisors is also relatively very bullish on the stock, earmarking 3.11 percent of its 13F equity portfolio to IEX.
Seeing as IDEX Corporation (NYSE:IEX) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that decided to sell off their entire stakes in the second quarter. It’s worth mentioning that Robert Joseph Caruso’s Select Equity Group dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising about $21.2 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund said goodbye to about $20.3 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as IDEX Corporation (NYSE:IEX) but similarly valued. We will take a look at KeyCorp (NYSE:KEY), POSCO (NYSE:PKX), NICE Ltd (NASDAQ:NICE), Imperial Oil Limited (NYSE:IMO), ArcelorMittal (NYSE:MT), Ingersoll Rand Inc. (NYSE:IR), and Omnicom Group Inc. (NYSE:OMC). This group of stocks’ market valuations resemble IEX’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $575 million in IEX’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 10 bullish hedge fund positions. IDEX Corporation (NYSE:IEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IEX is 70.1. 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. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on IEX as the stock returned 16.8% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.