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Textron Inc. (TXT): Hedge Funds Cashing Out

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 (Recession is Imminent: We Need A Travel Ban NOW). 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 Textron Inc. (NYSE:TXT).

Textron Inc. (NYSE:TXT) investors should pay attention to a decrease in hedge fund sentiment in recent months. TXT was in 22 hedge funds’ portfolios at the end of March. There were 30 hedge funds in our database with TXT positions at the end of the previous quarter. Our calculations also showed that TXT isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

James Mitarotonda Barington Capital

James A. Mitarotonda of Barington Capital Group

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the fresh hedge fund action regarding Textron Inc. (NYSE:TXT).

What does smart money think about Textron Inc. (NYSE:TXT)?

Heading into the second quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in TXT a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the biggest position in Textron Inc. (NYSE:TXT). GAMCO Investors has a $70.8 million position in the stock, comprising 0.8% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $42.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Cliff Asness’s AQR Capital Management, John Murphy’s Levin Easterly Partners and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Barington Capital Group allocated the biggest weight to Textron Inc. (NYSE:TXT), around 4.35% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, designating 1.87 percent of its 13F equity portfolio to TXT.

Since Textron Inc. (NYSE:TXT) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of funds that slashed their entire stakes last quarter. Intriguingly, Andreas Halvorsen’s Viking Global cut the biggest investment of all the hedgies followed by Insider Monkey, totaling an estimated $220.5 million in stock. Israel Englander’s fund, Millennium Management, also said goodbye to its stock, about $27.6 million worth. These transactions are interesting, as total hedge fund interest dropped by 8 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Textron Inc. (NYSE:TXT). We will take a look at Watsco Inc (NYSE:WSO), StoneCo Ltd. (NASDAQ:STNE), Fortune Brands Home & Security Inc (NYSE:FBHS), and Halliburton Company (NYSE:HAL). This group of stocks’ market caps are similar to TXT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WSO 20 173809 -3
STNE 34 615449 5
FBHS 31 640066 -3
HAL 32 513523 1
Average 29.25 485712 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $486 million. That figure was $230 million in TXT’s case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 20 bullish hedge fund positions. Textron Inc. (NYSE:TXT) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on TXT as the stock returned 32.6% during the second quarter and outperformed the market by an even larger margin.

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