Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is TE Connectivity Ltd. (NYSE:TEL) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Is TE Connectivity Ltd. (NYSE:TEL) the right investment to pursue these days? Prominent investors are turning bullish. The number of long hedge fund bets moved up by 10 in recent months. Our calculations also showed that TEL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). TEL was in 44 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 34 hedge funds in our database with TEL holdings 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' 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 41 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_256989" align="aligncenter" width="399"] Dmitry Balyasny of Balyasny Asset Managemnet[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let's take a glance at the key hedge fund action encompassing TE Connectivity Ltd. (NYSE:TEL).
How have hedgies been trading TE Connectivity Ltd. (NYSE:TEL)?
Heading into the first quarter of 2020, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 29% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards TEL over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Generation Investment Management held the most valuable stake in TE Connectivity Ltd. (NYSE:TEL), which was worth $516.5 million at the end of the third quarter. On the second spot was First Pacific Advisors LLC which amassed $362.5 million worth of shares. AQR Capital Management, Impax Asset Management, and Citadel Investment Group 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 LFL Advisers allocated the biggest weight to TE Connectivity Ltd. (NYSE:TEL), around 11.29% of its 13F portfolio. Rivulet Capital is also relatively very bullish on the stock, earmarking 7.47 percent of its 13F equity portfolio to TEL.
Consequently, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the biggest position in TE Connectivity Ltd. (NYSE:TEL). Alyeska Investment Group had $56.2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $42.6 million investment in the stock during the quarter. The other funds with brand new TEL positions are Dmitry Balyasny's Balyasny Asset Management, Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, and Steve Cohen's Point72 Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as TE Connectivity Ltd. (NYSE:TEL) but similarly valued. These stocks are CRH PLC (NYSE:CRH), Ingersoll-Rand Inc. (NYSE:IR), Sirius XM Holdings Inc (NASDAQ:SIRI), and PPG Industries, Inc. (NYSE:PPG). All of these stocks' market caps are closest to TEL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRH,5,184422,-4 IR,47,1411941,2 SIRI,31,1431150,-5 PPG,35,465224,5 Average,29.5,873184,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $873 million. That figure was $1840 million in TEL's case. Ingersoll-Rand Inc. (NYSE:IR) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 5 bullish hedge fund positions. TE Connectivity Ltd. (NYSE:TEL) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately TEL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on TEL were disappointed as the stock returned -23.5% 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 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.