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Hedge Funds Cutting Their Exposure To Emerson Electric Co. (EMR)

Asma UL Husna

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Emerson Electric Co. (NYSE:EMR).

Emerson Electric Co. (NYSE:EMR) has experienced a decrease in activity from the world's largest hedge funds lately. Our calculations also showed that EMR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: 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' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_746893" align="aligncenter" width="399"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a look at the latest hedge fund action surrounding Emerson Electric Co. (NYSE:EMR).

How are hedge funds trading Emerson Electric Co. (NYSE:EMR)?

At Q1's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EMR over the last 18 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Emerson Electric Co. (NYSE:EMR), which was worth $82.3 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $81.8 million worth of shares. Adage Capital Management, Citadel Investment Group, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 5.11% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to EMR.

Because Emerson Electric Co. (NYSE:EMR) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there is a sect of money managers who sold off their positions entirely in the third quarter. Interestingly, Brandon Haley's Holocene Advisors sold off the biggest investment of the 750 funds monitored by Insider Monkey, comprising about $55.1 million in stock. Gregg Moskowitz's fund, Interval Partners, also said goodbye to its stock, about $41.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 8 funds in the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Emerson Electric Co. (NYSE:EMR) but similarly valued. We will take a look at The Allstate Corporation (NYSE:ALL), Electronic Arts Inc. (NASDAQ:EA), Metlife Inc (NYSE:MET), and WEC Energy Group, Inc. (NYSE:WEC). All of these stocks' market caps are closest to EMR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALL,43,1535993,6 EA,73,1987020,5 MET,34,1018231,-4 WEC,29,267388,14 Average,44.75,1202158,5.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $1202 million. That figure was $434 million in EMR's case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand WEC Energy Group, Inc. (NYSE:WEC) is the least popular one with only 29 bullish hedge fund positions. Emerson Electric Co. (NYSE:EMR) is not the least popular stock in this group but hedge fund interest is still below average. 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 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on EMR as the stock returned 29.3% during the second quarter and outperformed the market by an even larger margin.

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

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