While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Intercontinental Exchange Inc (NYSE:ICE).
Intercontinental Exchange Inc (NYSE:ICE) was in 53 hedge funds’ portfolios at the end of December. The all time high for this statistic is 64. ICE shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. There were 64 hedge funds in our database with ICE holdings at the end of September. Our calculations also showed that ICE isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind let’s take a look at the recent hedge fund action regarding Intercontinental Exchange Inc (NYSE:ICE).
Do Hedge Funds Think ICE Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 53 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ICE over the last 22 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Intercontinental Exchange Inc (NYSE:ICE) was held by ARK Investment Management, which reported holding $525.5 million worth of stock at the end of December. It was followed by Cantillon Capital Management with a $508 million position. Other investors bullish on the company included D E Shaw, Alkeon Capital Management, and Ako Capital. 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, designating 6.22 percent of its 13F equity portfolio to ICE.
Because Intercontinental Exchange Inc (NYSE:ICE) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few funds who sold off their full holdings last quarter. It’s worth mentioning that Rick Slocum’s Harvard Management Co cut the biggest position of all the hedgies followed by Insider Monkey, comprising an estimated $116.2 million in stock, and Renaissance Technologies was right behind this move, as the fund dropped about $69.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 11 funds last quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Intercontinental Exchange Inc (NYSE:ICE) but similarly valued. These stocks are Truist Financial Corporation (NYSE:TFC), Illinois Tool Works Inc. (NYSE:ITW), Global Payments Inc (NYSE:GPN), Equinix, Inc. (REIT) (NASDAQ:EQIX), The PNC Financial Services Group Inc. (NYSE:PNC), Brookfield Asset Management Inc. (NYSE:BAM), and Ecolab Inc. (NYSE:ECL). All of these stocks’ market caps match 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 42.1 hedge funds with bullish positions and the average amount invested in these stocks was $1822 million. That figure was $3273 million in ICE’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand PNC Financial Services Group Inc. (NYSE:PNC) is the least popular one with only 35 bullish hedge fund positions. Intercontinental Exchange Inc (NYSE:ICE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ICE is 63.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately ICE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ICE were disappointed as the stock returned 2.4% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.