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Were Hedge Funds Right About Flocking Into ITT Corp (ITT) ?

Is ITT Corp (NYSE:ITT) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

ITT Corp (NYSE:ITT) has experienced an increase in hedge fund interest in recent months. ITT was in 25 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with ITT holdings at the end of the previous quarter. Our calculations also showed that ITT isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.

Clifton Robbins Blue Harbour

We’re going to take a peek at the new hedge fund action surrounding ITT Corp (NYSE:ITT).

What does the smart money think about ITT Corp (NYSE:ITT)?

Heading into the first quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 32% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in ITT a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ITT_apr2019

Of the funds tracked by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management has the most valuable position in ITT Corp (NYSE:ITT), worth close to $88.5 million, comprising 0.2% of its total 13F portfolio. On Adage Capital Management’s heels is AQR Capital Management, managed by Cliff Asness, which holds a $66.3 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish include Mario Gabelli’s GAMCO Investors, Alexander Mitchell’s Scopus Asset Management and Israel Englander’s Millennium Management.

Consequently, key hedge funds were breaking ground themselves. Carlson Capital, managed by Clint Carlson, created the most valuable position in ITT Corp (NYSE:ITT). Carlson Capital had $16.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $12.5 million investment in the stock during the quarter. The following funds were also among the new ITT investors: Clifton S. Robbins’s Blue Harbour Group, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ITT Corp (NYSE:ITT) but similarly valued. These stocks are Penumbra Inc (NYSE:PEN), Texas Pacific Land Trust (NYSE:TPL), JBG SMITH Properties (NYSE:JBGS), and The Howard Hughes Corporation (NYSE:HHC). All of these stocks’ market caps are closest to ITT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PEN 18 231703 -7
TPL 13 1041180 2
JBGS 20 271835 3
HHC 26 476406 7
Average 19.25 505281 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $505 million. That figure was $308 million in ITT’s case. The Howard Hughes Corporation (NYSE:HHC) is the most popular stock in this table. On the other hand Texas Pacific Land Trust (NYSE:TPL) is the least popular one with only 13 bullish hedge fund positions. ITT Corp (NYSE:ITT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on ITT as the stock returned 29.6% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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