Is TE Connectivity Ltd. (NYSE:TEL) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
TE Connectivity Ltd. (NYSE:TEL) was in 27 hedge funds' portfolios at the end of June. TEL has experienced an increase in hedge fund sentiment lately. There were 26 hedge funds in our database with TEL holdings at the end of the previous quarter. Our calculations also showed that TEL isn't among the 30 most popular stocks among hedge funds (see the video below). 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to review the recent hedge fund action encompassing TE Connectivity Ltd. (NYSE:TEL).
What does smart money think about TE Connectivity Ltd. (NYSE:TEL)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TEL over the last 16 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in TE Connectivity Ltd. (NYSE:TEL) was held by Generation Investment Management, which reported holding $437.5 million worth of stock at the end of March. It was followed by First Pacific Advisors LLC with a $387.8 million position. Other investors bullish on the company included Impax Asset Management, AQR Capital Management, and Rivulet Capital.
Now, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the biggest position in TE Connectivity Ltd. (NYSE:TEL). Adage Capital Management had $73.2 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $29.6 million position during the quarter. The other funds with brand new TEL positions are Matthew Tewksbury's Stevens Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to TE Connectivity Ltd. (NYSE:TEL). We will take a look at Carnival Corporation & Plc (NYSE:CUK), LyondellBasell Industries NV (NYSE:LYB), Atlassian Corporation Plc (NASDAQ:TEAM), and General Mills, Inc. (NYSE:GIS). This group of stocks' market values match TEL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CUK,10,121231,2 LYB,45,2065988,9 TEAM,36,1996530,0 GIS,39,1025933,7 Average,32.5,1302421,4.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1302 million. That figure was $1351 million in TEL's case. LyondellBasell Industries NV (NYSE:LYB) is the most popular stock in this table. On the other hand Carnival plc (NYSE:CUK) is the least popular one with only 10 bullish hedge fund positions. TE Connectivity Ltd. (NYSE:TEL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately TEL wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); TEL investors were disappointed as the stock returned -2.2% during the third quarter 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 in 2019.
Disclosure: None. This article was originally published at Insider Monkey.