In this article we will check out the progression of hedge fund sentiment towards Intercontinental Exchange Inc (NYSE:ICE) 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 ICE a good stock to buy now? Intercontinental Exchange Inc (NYSE:ICE) investors should be aware of an increase in hedge fund sentiment lately. Intercontinental Exchange Inc (NYSE:ICE) was in 64 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 61. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 60 hedge funds in our database with ICE positions at the end of the second quarter. Our calculations also showed that ICE isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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 scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to go over the new hedge fund action surrounding Intercontinental Exchange Inc (NYSE:ICE).
Hedge fund activity in Intercontinental Exchange Inc (NYSE:ICE)
At the end of September, a total of 64 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 7% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ICE over the last 21 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Cantillon Capital Management was the largest shareholder of Intercontinental Exchange Inc (NYSE:ICE), with a stake worth $443 million reported as of the end of September. Trailing Cantillon Capital Management was D E Shaw, which amassed a stake valued at $432.4 million. Alkeon Capital Management, Ako Capital, and Iridian Asset 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 Truvvo Partners allocated the biggest weight to Intercontinental Exchange Inc (NYSE:ICE), around 28.73% of its 13F portfolio. Isomer Partners is also relatively very bullish on the stock, earmarking 7.96 percent of its 13F equity portfolio to ICE.
Now, key money managers have been driving this bullishness. Ako Capital, managed by Nicolai Tangen, established the biggest position in Intercontinental Exchange Inc (NYSE:ICE). Ako Capital had $147.3 million invested in the company at the end of the quarter. Rick Slocum’s Harvard Management Co also made a $116.2 million investment in the stock during the quarter. The other funds with brand new ICE positions are Dmitry Balyasny’s Balyasny Asset Management, Josh Donfeld and David Rogers’s Castle Hook Partners, and Daniel Johnson’s Gillson Capital.
Let’s go over hedge fund activity in other stocks similar to Intercontinental Exchange Inc (NYSE:ICE). These stocks are Takeda Pharmaceutical Company Limited (NYSE:TAK), The Progressive Corporation (NYSE:PGR), Humana Inc (NYSE:HUM), Boston Scientific Corporation (NYSE:BSX), Norfolk Southern Corp. (NYSE:NSC), General Electric Company (NYSE:GE), and Moody’s Corporation (NYSE:MCO). All of these stocks’ market caps are closest to ICE’s market cap.
|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 48.6 hedge funds with bullish positions and the average amount invested in these stocks was $3524 million. That figure was $2905 million in ICE’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Intercontinental Exchange Inc (NYSE:ICE) is more popular among hedge funds. Our overall hedge fund sentiment score for ICE is 89. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Unfortunately ICE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ICE were disappointed as the stock returned 6.5% since the end of the third quarter (through 12/2) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.