We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Peltz's recent General Electric losses). However, it is still good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards ABB Ltd (NYSE:ABB).
ABB Ltd (NYSE:ABB) investors should be aware of a decrease in activity from the world's largest hedge funds recently. ABB was in 11 hedge funds' portfolios at the end of the third quarter of 2018. There were 18 hedge funds in our database with ABB holdings at the end of the previous quarter. Our calculations also showed that abb isn't among the 30 most popular stocks among hedge funds.
In today’s marketplace there are several indicators market participants use to grade publicly traded companies. A pair of the most under-the-radar indicators are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the best money managers can outpace their index-focused peers by a very impressive amount (see the details here).
We're going to take a look at the key hedge fund action encompassing ABB Ltd (NYSE:ABB).
How have hedgies been trading ABB Ltd (NYSE:ABB)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -39% from the second quarter of 2018. By comparison, 12 hedge funds held shares or bullish call options in ABB heading into this year. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of ABB Ltd (NYSE:ABB), with a stake worth $253.2 million reported as of the end of September. Trailing Fisher Asset Management was 13D Management, which amassed a stake valued at $12.8 million. Beddow Capital Management, Renaissance Technologies, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as ABB Ltd (NYSE:ABB) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the largest position of the 700 funds monitored by Insider Monkey, valued at close to $14.3 million in stock. John Overdeck and David Siegel's fund, Two Sigma Advisors, also sold off its stock, about $7 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as ABB Ltd (NYSE:ABB) but similarly valued. We will take a look at Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), S&P Global Inc. (NYSE:SPGI), Valero Energy Corporation (NYSE:VLO), and Deere & Company (NYSE:DE). This group of stocks' market values are similar to ABB's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VRTX,41,2595323,-4 SPGI,54,3925636,5 VLO,34,1266258,2 DE,37,2729209,-14 Average,41.5,2629107,-2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $2.63 billion. That figure was $289 million in ABB's case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Valero Energy Corporation (NYSE:VLO) is the least popular one with only 34 bullish hedge fund positions. Compared to these stocks ABB Ltd (NYSE:ABB) is even less popular than VLO. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.