Were Hedge Funds Right About Piling Into Linde plc (LIN)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Linde plc (NYSE:LIN) and determine whether hedge funds had an edge regarding this stock.

Linde plc (NYSE:LIN) has experienced an increase in hedge fund sentiment lately. LIN was in 53 hedge funds’ portfolios at the end of March. There were 47 hedge funds in our database with LIN positions at the end of the previous quarter. Our calculations also showed that LIN 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s review the key hedge fund action surrounding Linde plc (NYSE:LIN).

What have hedge funds been doing with Linde plc (NYSE:LIN)?

Heading into the second quarter of 2020, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in LIN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Ako Capital held the most valuable stake in Linde plc (NYSE:LIN), which was worth $662.9 million at the end of the third quarter. On the second spot was Egerton Capital Limited which amassed $500 million worth of shares. D1 Capital Partners, Steadfast Capital Management, and Holocene Advisors 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 Ako Capital allocated the biggest weight to Linde plc (NYSE:LIN), around 13.97% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 10.78 percent of its 13F equity portfolio to LIN.

As one would reasonably expect, some big names have jumped into Linde plc (NYSE:LIN) headfirst. Egerton Capital Limited, managed by John Armitage, initiated the largest position in Linde plc (NYSE:LIN). Egerton Capital Limited had $500 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also made a $64.9 million investment in the stock during the quarter. The following funds were also among the new LIN investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Andrew Byington’s Appian Way Asset Management.

Let’s check out hedge fund activity in other stocks similar to Linde plc (NYSE:LIN). These stocks are Citigroup Inc. (NYSE:C), Royal Bank of Canada (NYSE:RY), Anheuser-Busch InBev SA/NV (NYSE:BUD), and The Boeing Company (NYSE:BA). All of these stocks’ market caps resemble LIN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
C 86 5494249 -12
RY 16 138801 -4
BUD 17 877182 -6
BA 54 877378 -28
Average 43.25 1846903 -12.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 43.25 hedge funds with bullish positions and the average amount invested in these stocks was $1847 million. That figure was $3351 million in LIN’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 16 bullish hedge fund positions. Linde plc (NYSE:LIN) is not the most popular stock in this group but hedge fund interest is still above 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on LIN, though not to the same extent, as the stock returned 23.2% during the second quarter and outperformed the market as well.

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