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Were Hedge Funds Right About Dumping Roper Technologies, Inc. (ROP)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. 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 835 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 December 31st. In this article we look at what those investors think of Roper Technologies, Inc. (NYSE:ROP).

Roper Technologies, Inc. (NYSE:ROP) was in 40 hedge funds’ portfolios at the end of December. ROP investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 41 hedge funds in our database with ROP positions at the end of the previous quarter. Our calculations also showed that ROP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 41 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action encompassing Roper Technologies, Inc. (NYSE:ROP).

How are hedge funds trading Roper Technologies, Inc. (NYSE:ROP)?

At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in ROP a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in Roper Technologies, Inc. (NYSE:ROP) was held by Akre Capital Management, which reported holding $555.1 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $263.5 million position. Other investors bullish on the company included Waratah Capital Advisors, D E Shaw, and Bristol Gate Capital Partners. In terms of the portfolio weights assigned to each position Lansing Management allocated the biggest weight to Roper Technologies, Inc. (NYSE:ROP), around 12.47% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, earmarking 7.02 percent of its 13F equity portfolio to ROP.

Judging by the fact that Roper Technologies, Inc. (NYSE:ROP) has faced bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedgies that elected to cut their entire stakes heading into Q4. Interestingly, Michael Gelband’s ExodusPoint Capital dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $14.6 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also said goodbye to its stock, about $11.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Roper Technologies, Inc. (NYSE:ROP). We will take a look at Occidental Petroleum Corporation (NYSE:OXY), The Allstate Corporation (NYSE:ALL), Constellation Brands, Inc. (NYSE:STZ), and Telefonica S.A. (NYSE:TEF). This group of stocks’ market caps are closest to ROP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OXY 44 2305548 -18
ALL 37 1712738 -11
STZ 52 1980100 6
TEF 9 36499 4
Average 35.5 1508721 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1509 million. That figure was $1248 million in ROP’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 9 bullish hedge fund positions. Roper Technologies, Inc. (NYSE:ROP) 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. These stocks lost 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on ROP as the stock returned -19.9% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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