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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Ecolab Inc. (NYSE:ECL) to find out whether there were any major changes in hedge funds' views.
Is ECL a good stock to buy? Ecolab Inc. (NYSE:ECL) was in 48 hedge funds' portfolios at the end of June. The all time high for this statistic is 52. ECL has seen an increase in activity from the world's largest hedge funds of late. There were 42 hedge funds in our database with ECL holdings at the end of March. Our calculations also showed that ECL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
William Von Mueffling of Cantillon Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we're going to view the recent hedge fund action surrounding Ecolab Inc. (NYSE:ECL).
Do Hedge Funds Think ECL Is A Good Stock To Buy Now?
At second quarter's end, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from the first quarter of 2020. On the other hand, there were a total of 46 hedge funds with a bullish position in ECL a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Michael Larson's Bill & Melinda Gates Foundation Trust has the largest position in Ecolab Inc. (NYSE:ECL), worth close to $899.4 million, comprising 3.8% of its total 13F portfolio. The second most bullish fund manager is Impax Asset Management, led by Ian Simm, holding a $658.3 million position; 2.9% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass William von Mueffling's Cantillon Capital Management, Israel Englander's Millennium Management and Cliff Asness's AQR Capital Management. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 5.91% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, dishing out 3.77 percent of its 13F equity portfolio to ECL.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Renaissance Technologies, established the largest position in Ecolab Inc. (NYSE:ECL). Renaissance Technologies had $40.3 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also initiated a $16.1 million position during the quarter. The other funds with new positions in the stock are Andrew Byington's Appian Way Asset Management, Robert Vincent McHugh's Jade Capital Advisors, and Jinghua Yan's TwinBeech Capital.
Let's now take a look at hedge fund activity in other stocks similar to Ecolab Inc. (NYSE:ECL). These stocks are Northrop Grumman Corporation (NYSE:NOC), DoorDash, Inc. (NYSE:DASH), Emerson Electric Co. (NYSE:EMR), The Progressive Corporation (NYSE:PGR), Humana Inc (NYSE:HUM), KE Holdings Inc (NYSE:BEKE), and CrowdStrike Holdings, Inc. (NASDAQ:CRWD). All of these stocks' market caps are similar to ECL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NOC,42,1053366,2 DASH,45,8924479,7 EMR,45,854279,0 PGR,44,1338423,-1 HUM,59,3257015,6 BEKE,31,2712876,-2 CRWD,66,7266652,-11 Average,47.4,3629584,0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.4 hedge funds with bullish positions and the average amount invested in these stocks was $3630 million. That figure was $2773 million in ECL's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand KE Holdings Inc (NYSE:BEKE) is the least popular one with only 31 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECL is 62. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on ECL as the stock returned 3.9% since the end of Q2 (through 10/1) 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.