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Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) and see how the stock is affected by the recent hedge fund activity.
Is Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) a buy here? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund positions were cut by 1 recently. Our calculations also showed that EDN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). EDN was in 3 hedge funds' portfolios at the end of the third quarter of 2019. There were 4 hedge funds in our database with EDN positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now let's go over the recent hedge fund action regarding Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN).
How are hedge funds trading Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -25% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in EDN a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
The largest stake in Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) was held by Marshall Wace, which reported holding $1 million worth of stock at the end of September. It was followed by LMR Partners with a $0.5 million position. The only other hedge fund that is bullish on the company was Highland Capital Management.
Due to the fact that Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) has faced declining sentiment from the smart money, it's safe to say that there exists a select few hedge funds that slashed their entire stakes last quarter. At the top of the heap, Israel Englander's Millennium Management cut the largest investment of all the hedgies tracked by Insider Monkey, worth an estimated $1.5 million in stock. Edmond M. Safra's fund, EMS Capital, also dropped its stock, about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 1 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN). We will take a look at Marlin Business Services Corp. (NASDAQ:MRLN), MiX Telematics Limited (NYSE:MIXT), Endeavour Silver Corp. (NYSE:EXK), and Nordic American Tanker Limited (NYSE:NAT). This group of stocks' market values are similar to EDN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MRLN,5,102733,2 MIXT,10,27871,2 EXK,5,16777,-1 NAT,9,6253,0 Average,7.25,38409,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $2 million in EDN's case. MiX Telematics Limited (NYSE:MIXT) is the most popular stock in this table. On the other hand Marlin Business Services Corp. (NASDAQ:MRLN) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Empresa Distribuidora y Comercializadora Norte Sociedad Anonima (NYSE:EDN) is even less popular than MRLN. Hedge funds dodged a bullet by taking a bearish stance towards EDN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EDN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); EDN investors were disappointed as the stock returned -24.9% 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.