Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards E*TRADE Financial Corporation (NASDAQ:ETFC) changed during the first quarter.
E*TRADE Financial Corporation (NASDAQ:ETFC) was in 39 hedge funds' portfolios at the end of September. ETFC has experienced a decrease in enthusiasm from smart money in recent months. There were 43 hedge funds in our database with ETFC holdings at the end of the previous quarter. Our calculations also showed that ETFC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_27676" align="aligncenter" width="355"] Israel Englander of Millennium Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's go over the recent hedge fund action encompassing E*TRADE Financial Corporation (NASDAQ:ETFC).
Hedge fund activity in E*TRADE Financial Corporation (NASDAQ:ETFC)
Heading into the fourth quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the second quarter of 2019. On the other hand, there were a total of 36 hedge funds with a bullish position in ETFC a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, D E Shaw, managed by David E. Shaw, holds the most valuable position in E*TRADE Financial Corporation (NASDAQ:ETFC). D E Shaw has a $142.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, holding a $123.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Israel Englander's Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and John Smith Clark's Southpoint Capital Advisors. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to E*TRADE Financial Corporation (NASDAQ:ETFC), around 41.66% of its portfolio. BlueMar Capital Management is also relatively very bullish on the stock, designating 3.15 percent of its 13F equity portfolio to ETFC.
Seeing as E*TRADE Financial Corporation (NASDAQ:ETFC) has faced a decline in interest from the smart money, we can see that there is a sect of hedge funds that elected to cut their entire stakes by the end of the third quarter. Intriguingly, David Costen Haley's HBK Investments dumped the largest investment of the "upper crust" of funds monitored by Insider Monkey, valued at close to $44.6 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund cut about $22.3 million worth. These transactions are interesting, as total hedge fund interest fell by 4 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to E*TRADE Financial Corporation (NASDAQ:ETFC). We will take a look at West Pharmaceutical Services Inc. (NYSE:WST), Globe Life Inc. (NYSE:GL), VICI Properties Inc. (NYSE:VICI), and RingCentral Inc (NYSE:RNG). All of these stocks' market caps are similar to ETFC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WST,30,494330,6 GL,19,828753,0 VICI,37,2262889,-22 RNG,48,1615607,3 Average,33.5,1300395,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1300 million. That figure was $875 million in ETFC's case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 19 bullish hedge fund positions. E*TRADE Financial Corporation (NASDAQ:ETFC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 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 fourth quarter (through the end of November) 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.