Were These Hedge Funds Wrong About Dumping Air Products & Chemicals, Inc. (APD)?

In this article we will take a look at whether hedge funds think Air Products & Chemicals, Inc. (NYSE:APD) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Air Products & Chemicals, Inc. (NYSE:APD) has seen a decrease in support from the world’s most elite money managers in recent months. Air Products & Chemicals, Inc. (NYSE:APD) was in 37 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 77. Our calculations also showed that APD isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

David Siegel of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding Air Products & Chemicals, Inc. (NYSE:APD).

How have hedgies been trading Air Products & Chemicals, Inc. (NYSE:APD)?

At second quarter’s end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. By comparison, 32 hedge funds held shares or bullish call options in APD a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

The largest stake in Air Products & Chemicals, Inc. (NYSE:APD) was held by Maverick Capital, which reported holding $64.2 million worth of stock at the end of June. It was followed by Adage Capital Management with a $56.6 million position. Other investors bullish on the company included AQR Capital Management, Echo Street Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position SAYA Management allocated the biggest weight to Air Products & Chemicals, Inc. (NYSE:APD), around 6.28% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, setting aside 1.82 percent of its 13F equity portfolio to APD.

Since Air Products & Chemicals, Inc. (NYSE:APD) has witnessed a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their full holdings last quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC said goodbye to the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $41 million in stock, and Javier Velazquez’s Albar Capital was right behind this move, as the fund cut about $4.5 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Air Products & Chemicals, Inc. (NYSE:APD). These stocks are Vale SA (NYSE:VALE), The Sherwin-Williams Company (NYSE:SHW), Autodesk, Inc. (NASDAQ:ADSK), Brookfield Asset Management Inc. (NYSE:BAM), Moody’s Corporation (NYSE:MCO), Humana Inc (NYSE:HUM), and Northrop Grumman Corporation (NYSE:NOC). This group of stocks’ market values are closest to APD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VALE 29 1613921 1
SHW 53 1830766 -4
ADSK 67 3014972 2
BAM 33 1001293 -4
MCO 61 10770558 11
HUM 73 4697967 3
NOC 47 990004 2
Average 51.9 3417069 1.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.9 hedge funds with bullish positions and the average amount invested in these stocks was $3417 million. That figure was $440 million in APD’s case. Humana Inc (NYSE:HUM) is the most popular stock in this table. On the other hand Vale SA (NYSE:VALE) is the least popular one with only 29 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 overall hedge fund sentiment score for APD is 24.5. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on APD as the stock returned 14.9% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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