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Is E*TRADE Financial Corporation (ETFC) Going to Burn These Hedge Funds?

Reymerlyn Martin

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 28. In this article, we will use that wealth of knowledge to determine whether or not E*TRADE Financial Corporation (NASDAQ:ETFC) makes for a good investment right now.

Hedge fund interest in E*TRADE Financial Corporation (NASDAQ:ETFC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ETFC to other stocks including Seattle Genetics, Inc. (NASDAQ:SGEN), Equity Lifestyle Properties, Inc. (NYSE:ELS), and Marathon Oil Corporation (NYSE:MRO) to get a better sense of its popularity. Our calculations also showed that ETFC isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Sander Gerber of Hudson Bay Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a glance at the fresh hedge fund action regarding E*TRADE Financial Corporation (NASDAQ:ETFC).

What have hedge funds been doing with E*TRADE Financial Corporation (NASDAQ:ETFC)?

At Q2's end, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the first quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in ETFC a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

ETFC_oct2019

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in E*TRADE Financial Corporation (NASDAQ:ETFC). D E Shaw has a $173.8 million position in the stock, comprising 0.2% of its 13F portfolio. Coming in second is Millennium Management, managed by Israel Englander, which holds a $160.6 million position; 0.2% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions encompass Ken Griffin's Citadel Investment Group, Steve Cohen's Point72 Asset Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Since E*TRADE Financial Corporation (NASDAQ:ETFC) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there exists a select few funds who sold off their entire stakes in the second quarter. It's worth mentioning that Doug Silverman and Alexander Klabin's Senator Investment Group dropped the biggest position of all the hedgies tracked by Insider Monkey, comprising close to $74.3 million in stock, and Ravi Chopra's Azora Capital was right behind this move, as the fund dropped about $38.5 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's check out hedge fund activity in other stocks similar to E*TRADE Financial Corporation (NASDAQ:ETFC). We will take a look at Seattle Genetics, Inc. (NASDAQ:SGEN), Equity Lifestyle Properties, Inc. (NYSE:ELS), Marathon Oil Corporation (NYSE:MRO), and FMC Corporation (NYSE:FMC). This group of stocks' market caps resemble ETFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGEN,17,3788958,-2 ELS,18,553591,3 MRO,32,494413,-5 FMC,36,1206447,7 Average,25.75,1510852,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $1511 million. That figure was $1181 million in ETFC's case. FMC Corporation (NYSE:FMC) is the most popular stock in this table. On the other hand Seattle Genetics, Inc. (NASDAQ:SGEN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks E*TRADE Financial Corporation (NASDAQ:ETFC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ETFC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ETFC were disappointed as the stock returned -1.7% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market in Q3.

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

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