How Did United Technologies Corporation (UTX) Compare Against Hedge Fund Darlings in 2019?

Abigail Fisher

Sun, Dec 29, 2019, 10:15 AM

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in United Technologies Corporation (NYSE:UTX).

Is United Technologies Corporation (NYSE:UTX) worth your attention right now? Prominent investors are becoming hopeful. The number of long hedge fund bets inched up by 3 in recent months. Our calculations also showed that UTX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). UTX was in 68 hedge funds' portfolios at the end of September. There were 65 hedge funds in our database with UTX positions at the end of the previous quarter.

In the eyes of most market participants, hedge funds are seen as worthless, old financial vehicles of years past. While there are greater than 8000 funds in operation at the moment, Our experts hone in on the elite of this club, about 750 funds. Most estimates calculate that this group of people shepherd bulk of the smart money's total asset base, and by monitoring their unrivaled stock picks, Insider Monkey has found several investment strategies that have historically surpassed the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points a year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

[caption id="attachment_26335" align="aligncenter" width="480"]

Ken Fisher of Fisher Asset Management[/caption]

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now we're going to take a look at the key hedge fund action surrounding United Technologies Corporation (NYSE:UTX).

How have hedgies been trading United Technologies Corporation (NYSE:UTX)?

At the end of the third quarter, a total of 68 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 59 hedge funds with a bullish position in UTX a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Third Point was the largest shareholder of United Technologies Corporation (NYSE:UTX), with a stake worth $819.1 million reported as of the end of September. Trailing Third Point was Citadel Investment Group, which amassed a stake valued at $729 million. Fisher Asset Management, Soroban Capital Partners, and First Pacific 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 Third Point allocated the biggest weight to United Technologies Corporation (NYSE:UTX), around 9.73% of its 13F portfolio. One Fin Capital Management is also relatively very bullish on the stock, dishing out 8.44 percent of its 13F equity portfolio to UTX.

As aggregate interest increased, key money managers have been driving this bullishness. Levin Easterly Partners, managed by John Murphy, initiated the most valuable position in United Technologies Corporation (NYSE:UTX). Levin Easterly Partners had $110.5 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers's Castle Hook Partners also made a $87.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Panayotis Takis Sparaggis's Alkeon Capital Management, Anand Parekh's Alyeska Investment Group, and Doug Silverman and Alexander Klabin's Senator Investment Group.

Let's now take a look at hedge fund activity in other stocks similar to United Technologies Corporation (NYSE:UTX). These stocks are Netflix, Inc. (NASDAQ:NFLX), AstraZeneca plc (NYSE:AZN), Thermo Fisher Scientific Inc. (NYSE:TMO), and Royal Bank of Canada (NYSE:RY). This group of stocks' market valuations resemble UTX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NFLX,95,8996171,-11 AZN,25,1779111,1 TMO,65,3444543,-7 RY,17,491191,2 Average,50.5,3677754,-3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.5 hedge funds with bullish positions and the average amount invested in these stocks was $3678 million. That figure was $6458 million in UTX's case. Netflix, Inc. (NASDAQ:NFLX) 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 17 bullish hedge fund positions. United Technologies Corporation (NYSE:UTX) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on UTX as the stock returned 43.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.