Were Hedge Funds Right About Embracing Carrier Global Corporation (CARR)?

Asma UL Husna
·6 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Carrier Global Corporation (NYSE:CARR).

Carrier Global Corporation (NYSE:CARR) was in 44 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 3. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. CARR has experienced an increase in support from the world's most elite money managers of late. There were 3 hedge funds in our database with CARR positions at the end of the first quarter. Our calculations also showed that CARR 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.

To most market participants, hedge funds are viewed as underperforming, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at the moment, Our researchers hone in on the moguls of this club, about 850 funds. These investment experts handle the lion's share of the hedge fund industry's total capital, and by tailing their inimitable stock picks, Insider Monkey has figured out numerous investment strategies that have historically beaten the market. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Ric Dillon Diamond Hill Capital
Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. Keeping this in mind let's view the fresh hedge fund action regarding Carrier Global Corporation (NYSE:CARR).

How have hedgies been trading Carrier Global Corporation (NYSE:CARR)?

At second quarter's end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 1367% from one quarter earlier. By comparison, 0 hedge funds held shares or bullish call options in CARR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to Insider Monkey's hedge fund database, John Smith Clark's Southpoint Capital Advisors has the largest position in Carrier Global Corporation (NYSE:CARR), worth close to $266.6 million, corresponding to 6.5% of its total 13F portfolio. On Southpoint Capital Advisors's heels is Southeastern Asset Management, led by Mason Hawkins, holding a $197.2 million position; 4.9% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism include Ric Dillon's Diamond Hill Capital, Benjamin A. Smith's Laurion Capital Management and Jeffrey Gates's Gates Capital Management. In terms of the portfolio weights assigned to each position Madison Avenue Partners allocated the biggest weight to Carrier Global Corporation (NYSE:CARR), around 17.2% of its 13F portfolio. DSAM Partners is also relatively very bullish on the stock, dishing out 10.34 percent of its 13F equity portfolio to CARR.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Southpoint Capital Advisors, managed by John Smith Clark, initiated the most valuable position in Carrier Global Corporation (NYSE:CARR). Southpoint Capital Advisors had $266.6 million invested in the company at the end of the quarter. Mason Hawkins's Southeastern Asset Management also made a $197.2 million investment in the stock during the quarter. The other funds with brand new CARR positions are Ric Dillon's Diamond Hill Capital, Benjamin A. Smith's Laurion Capital Management, and Jeffrey Gates's Gates Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Carrier Global Corporation (NYSE:CARR) but similarly valued. These stocks are Lennar Corporation (NYSE:LEN), Energy Transfer L.P. (NYSE:ET), Church & Dwight Co., Inc. (NYSE:CHD), MarketAxess Holdings Inc. (NASDAQ:MKTX), Keysight Technologies Inc (NYSE:KEYS), Wipro Limited (NYSE:WIT), and Entergy Corporation (NYSE:ETR). This group of stocks' market values are closest to CARR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LEN,55,1692845,-2 ET,31,552361,-2 CHD,33,508177,-3 MKTX,33,918191,6 KEYS,47,564484,7 WIT,7,59120,0 ETR,32,953385,-2 Average,34,749795,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $750 million. That figure was $1525 million in CARR's case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 7 bullish hedge fund positions. Carrier Global Corporation (NYSE:CARR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CARR is 78.5. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on CARR as the stock returned 57.2% since the end of Q2 (through 10/23) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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