At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards General Electric Company (NYSE:GE) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is General Electric Company (NYSE:GE) a buy, sell, or hold? The best stock pickers were cutting their exposure. The number of bullish hedge fund bets went down by 1 recently. General Electric Company (NYSE:GE) was in 57 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 74. Our calculations also showed that GE 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). There were 58 hedge funds in our database with GE positions at the end of the first quarter. Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Richard S. Pzena of Pzena Investment Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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.. We go through lists like the 10 most profitable companies in America 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we're going to check out the new hedge fund action surrounding General Electric Company (NYSE:GE).
How are hedge funds trading General Electric Company (NYSE:GE)?
At the end of June, a total of 57 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -2% from the previous quarter. The graph below displays the number of hedge funds with bullish position in GE over the last 20 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in General Electric Company (NYSE:GE) was held by Eagle Capital Management, which reported holding $948.4 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $512.1 million position. Other investors bullish on the company included Trian Partners, Arrowstreet Capital, and Platinum Asset Management. In terms of the portfolio weights assigned to each position Trian Partners allocated the biggest weight to General Electric Company (NYSE:GE), around 8.4% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, designating 5.69 percent of its 13F equity portfolio to GE.
Seeing as General Electric Company (NYSE:GE) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of fund managers that elected to cut their positions entirely in the second quarter. Intriguingly, Scott Bessent's Key Square Capital Management dropped the biggest position of all the hedgies tracked by Insider Monkey, totaling an estimated $19.3 million in stock. Mike Masters's fund, Masters Capital Management, also dumped its stock, about $15.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to General Electric Company (NYSE:GE). We will take a look at NetEase, Inc (NASDAQ:NTES), Duke Energy Corporation (NYSE:DUK), Activision Blizzard, Inc. (NASDAQ:ATVI), CME Group Inc (NASDAQ:CME), Micron Technology, Inc. (NASDAQ:MU), Chubb Limited (NYSE:CB), and Ecolab Inc. (NYSE:ECL). This group of stocks' market valuations match GE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTES,38,4594320,-1 DUK,33,906929,-2 ATVI,97,3564560,-4 CME,60,2336649,-2 MU,84,4285777,-10 CB,40,1288157,7 ECL,46,2099678,8 Average,56.9,2725153,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 56.9 hedge funds with bullish positions and the average amount invested in these stocks was $2725 million. That figure was $3186 million in GE's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 33 bullish hedge fund positions. General Electric Company (NYSE:GE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GE is 45.9. 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. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately GE wasn't nearly as popular as these 10 stocks and hedge funds that were betting on GE were disappointed as the stock returned -2.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.