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Is Allegion plc (ALLE) Going to Burn These Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. Stocks kept going up since then. In this article we look at how hedge funds traded Allegion plc (NYSE:ALLE) and determine whether the smart money was really smart about this stock.

Allegion plc (NYSE:ALLE) was in 29 hedge funds’ portfolios at the end of June. The all time high for this statistics is 36. ALLE investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 31 hedge funds in our database with ALLE holdings at the end of March. Our calculations also showed that ALLE 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

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 let’s take a glance at the fresh hedge fund action surrounding Allegion plc (NYSE:ALLE).

How have hedgies been trading Allegion plc (NYSE:ALLE)?

Heading into the third quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ALLE over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Ako Capital held the most valuable stake in Allegion plc (NYSE:ALLE), which was worth $158.9 million at the end of the third quarter. On the second spot was Intermede Investment Partners which amassed $84.4 million worth of shares. Bristol Gate Capital Partners, Arrowstreet Capital, 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 Bristol Gate Capital Partners allocated the biggest weight to Allegion plc (NYSE:ALLE), around 4.66% of its 13F portfolio. Intermede Investment Partners is also relatively very bullish on the stock, setting aside 4.13 percent of its 13F equity portfolio to ALLE.

Due to the fact that Allegion plc (NYSE:ALLE) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of fund managers that slashed their full holdings by the end of the second quarter. Interestingly, Clint Carlson’s Carlson Capital dropped the biggest investment of all the hedgies tracked by Insider Monkey, comprising about $29.9 million in stock. Javier Velazquez’s fund, Albar Capital, also sold off its stock, about $5.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks similar to Allegion plc (NYSE:ALLE). These stocks are Quidel Corporation (NASDAQ:QDEL), CenterPoint Energy, Inc. (NYSE:CNP), Annaly Capital Management, Inc. (NYSE:NLY), PPD, Inc. (NASDAQ:PPD), Lamb Weston Holdings, Inc. (NYSE:LW), Guidewire Software Inc (NYSE:GWRE), and Brookfield Property Partners LP (NASDAQ:BPY). This group of stocks’ market caps are closest to ALLE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QDEL 32 282861 10
CNP 30 480314 -2
NLY 21 288668 -6
PPD 27 620340 0
LW 25 189982 -4
GWRE 29 1008560 -5
BPY 6 43730 -1
Average 24.3 416351 -1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $425 million in ALLE’s case. Quidel Corporation (NASDAQ:QDEL) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 6 bullish hedge fund positions. Allegion plc (NYSE:ALLE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ALLE is 71.4. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately ALLE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ALLE were disappointed as the stock returned -3% 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.