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Were Hedge Funds Right About Selling Air Products & Chemicals, Inc. (APD)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Air Products & Chemicals, Inc. (NYSE:APD) and determine whether hedge funds skillfully traded this stock.

Is Air Products & Chemicals, Inc. (NYSE:APD) a marvelous investment right now? Money managers were selling. The number of long hedge fund positions fell by 13 lately. Our calculations also showed that APD 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). APD was in 41 hedge funds’ portfolios at the end of the first quarter of 2020. There were 54 hedge funds in our database with APD positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most investors, hedge funds are viewed as slow, outdated financial tools of yesteryear. While there are more than 8000 funds with their doors open at the moment, Our experts choose to focus on the upper echelon of this group, about 850 funds. These hedge fund managers orchestrate most of all hedge funds’ total asset base, and by following their best stock picks, Insider Monkey has revealed many investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Anna Nikolayevsky Axel Capital

Anna Nikolayevsky of Axel Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. 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. With all of this in mind let’s take a gander at the new hedge fund action regarding Air Products & Chemicals, Inc. (NYSE:APD).

How are hedge funds trading Air Products & Chemicals, Inc. (NYSE:APD)?

At the end of the first quarter, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in APD over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

The largest stake in Air Products & Chemicals, Inc. (NYSE:APD) was held by Two Sigma Advisors, which reported holding $74.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $44.7 million position. Other investors bullish on the company included Adage Capital Management, Valinor Management LLC, and Point72 Asset Management. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Air Products & Chemicals, Inc. (NYSE:APD), around 8.27% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, setting aside 7.81 percent of its 13F equity portfolio to APD.

Since Air Products & Chemicals, Inc. (NYSE:APD) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of fund managers that slashed their entire stakes in the first quarter. It’s worth mentioning that Michael Doheny’s Freshford Capital Management dropped the biggest investment of all the hedgies watched by Insider Monkey, totaling about $51.9 million in stock. Gary Claar’s fund, Claar Advisors, also dropped its stock, about $21.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 13 funds in the first quarter.

Let’s now review hedge fund activity in other stocks similar to Air Products & Chemicals, Inc. (NYSE:APD). We will take a look at Shopify Inc (NYSE:SHOP), Kimberly Clark Corporation (NYSE:KMB), Marsh & McLennan Companies, Inc. (NYSE:MMC), and Deere & Company (NYSE:DE). This group of stocks’ market valuations match APD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHOP 43 2892013 13
KMB 46 1173309 9
MMC 37 668435 6
DE 44 875005 -6
Average 42.5 1402191 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.5 hedge funds with bullish positions and the average amount invested in these stocks was $1402 million. That figure was $352 million in APD’s case. Kimberly Clark Corporation (NYSE:KMB) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 37 bullish hedge fund positions. Air Products & Chemicals, Inc. (NYSE:APD) 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on APD, though not to the same extent, as the stock returned 21.6% during the second quarter and outperformed the market.

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