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Polaris Industries Inc. (PII) vs. Hedge Fund Favorites in 2019

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Polaris Industries Inc. (NYSE:PII).

Polaris Industries Inc. (NYSE:PII) was in 25 hedge funds’ portfolios at the end of September. PII has experienced an increase in enthusiasm from smart money in recent months. There were 24 hedge funds in our database with PII positions at the end of the previous quarter. Our calculations also showed that PII isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are dozens of formulas shareholders put to use to size up publicly traded companies. A duo of the most innovative formulas are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can trounce the broader indices by a very impressive amount (see the details here).

Ken Griffin

Ken Griffin of Citadel Investment Group

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s analyze the key hedge fund action surrounding Polaris Industries Inc. (NYSE:PII).

How have hedgies been trading Polaris Industries Inc. (NYSE:PII)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the second quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in PII a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is PII A Good Stock To Buy?

Among these funds, Citadel Investment Group held the most valuable stake in Polaris Industries Inc. (NYSE:PII), which was worth $124.8 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $57 million worth of shares. Balyasny Asset Management, Alyeska Investment Group, and Interval Partners 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 Bronson Point Partners allocated the biggest weight to Polaris Industries Inc. (NYSE:PII), around 2.1% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, earmarking 1.4 percent of its 13F equity portfolio to PII.

As industrywide interest jumped, key money managers were leading the bulls’ herd. ExodusPoint Capital, managed by Michael Gelband, created the most outsized position in Polaris Industries Inc. (NYSE:PII). ExodusPoint Capital had $3.3 million invested in the company at the end of the quarter. Anthony Joseph Vaccarino’s North Fourth Asset Management also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Larry Foley and Paul Farrell’s Bronson Point Partners, Joel Greenblatt’s Gotham Asset Management, and Matthew Tewksbury’s Stevens Capital Management.

Let’s go over hedge fund activity in other stocks similar to Polaris Industries Inc. (NYSE:PII). We will take a look at Acuity Brands, Inc. (NYSE:AYI), Quanta Services Inc (NYSE:PWR), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks’ market values resemble PII’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AYI 26 897765 3
PWR 30 881523 1
LECO 16 256053 -6
THG 25 272433 5
Average 24.25 576944 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $577 million. That figure was $359 million in PII’s case. Quanta Services Inc (NYSE:PWR) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 16 bullish hedge fund positions. Polaris Industries Inc. (NYSE:PII) is not the most popular stock in this group but hedge fund interest is still above average. 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 10.1 percentage points. Hedge funds were also right about betting on PII, though not to the same extent, as the stock returned 36.4% during 2019 and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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