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 TE Connectivity Ltd. (NYSE:TEL) and determine whether hedge funds skillfully traded this stock.
Is TE Connectivity Ltd. (NYSE:TEL) a sound stock to buy now? Money managers were taking an optimistic view. The number of long hedge fund positions went up by 6 recently. TE Connectivity Ltd. (NYSE:TEL) was in 39 hedge funds' portfolios at the end of June. The all time high for this statistics is 44. Our calculations also showed that TEL 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.
If you'd ask most market participants, hedge funds are viewed as worthless, old investment tools of the past. While there are over 8000 funds with their doors open today, Our experts hone in on the moguls of this group, about 850 funds. These hedge fund managers command the lion's share of all hedge funds' total capital, and by following their inimitable equity investments, Insider Monkey has determined many investment strategies that have historically outpaced the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year 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 .
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to check out the recent hedge fund action surrounding TE Connectivity Ltd. (NYSE:TEL).
How are hedge funds trading TE Connectivity Ltd. (NYSE:TEL)?
Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in TEL over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Generation Investment Management was the largest shareholder of TE Connectivity Ltd. (NYSE:TEL), with a stake worth $680.6 million reported as of the end of September. Trailing Generation Investment Management was First Pacific Advisors LLC, which amassed a stake valued at $324 million. Citadel Investment Group, Rivulet Capital, and Third Point 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 LFL Advisers allocated the biggest weight to TE Connectivity Ltd. (NYSE:TEL), around 13.12% of its 13F portfolio. Rivulet Capital is also relatively very bullish on the stock, earmarking 7.78 percent of its 13F equity portfolio to TEL.
As aggregate interest increased, some big names were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the most outsized position in TE Connectivity Ltd. (NYSE:TEL). Balyasny Asset Management had $30.2 million invested in the company at the end of the quarter. Brian Ashford-Russell and Tim Woolley's Polar Capital also initiated a $9.4 million position during the quarter. The other funds with brand new TEL positions are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, Gregg Moskowitz's Interval Partners, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as TE Connectivity Ltd. (NYSE:TEL) but similarly valued. These stocks are American International Group Inc (NYSE:AIG), Cadence Design Systems Inc (NASDAQ:CDNS), The Kroger Co. (NYSE:KR), Microchip Technology Incorporated (NASDAQ:MCHP), Lloyds Banking Group PLC (NYSE:LYG), Franco-Nevada Corporation (NYSE:FNV), and Manulife Financial Corporation (NYSE:MFC). This group of stocks' market valuations are similar to TEL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIG,40,2028685,-3 CDNS,39,1090501,8 KR,41,2361525,-2 MCHP,33,890574,-5 LYG,7,14116,-2 FNV,23,1374566,2 MFC,19,171076,-1 Average,28.9,1133006,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1133 million. That figure was $2000 million in TEL's case. The Kroger Co. (NYSE:KR) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 7 bullish hedge fund positions. TE Connectivity Ltd. (NYSE:TEL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TEL is 83.6. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on TEL as the stock returned 19.1% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Get real-time email alerts: Follow Te Connectivity Ltd. (NYSE:TEL)
Disclosure: None. This article was originally published at Insider Monkey.