Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Eaton Corporation plc (NYSE:ETN).
Is Eaton Corporation plc (NYSE:ETN) a healthy stock for your portfolio? Money managers are selling. The number of bullish hedge fund positions were cut by 3 in recent months. Our calculations also showed that ETN isn't among the 30 most popular stocks among hedge funds. ETN was in 36 hedge funds' portfolios at the end of the second quarter of 2019. There were 39 hedge funds in our database with ETN holdings at the end of the previous quarter.
To most traders, hedge funds are seen as slow, outdated financial tools of yesteryear. While there are greater than 8000 funds trading at present, We hone in on the top tier of this club, about 750 funds. These hedge fund managers orchestrate bulk of all hedge funds' total asset base, and by tailing their top stock picks, Insider Monkey has determined various investment strategies that have historically outrun Mr. Market. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per year since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
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 take a peek at the key hedge fund action surrounding Eaton Corporation plc (NYSE:ETN).
What does smart money think about Eaton Corporation plc (NYSE:ETN)?
At the end of the second quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ETN over the last 16 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 Eaton Corporation plc (NYSE:ETN) was held by AQR Capital Management, which reported holding $331.1 million worth of stock at the end of March. It was followed by Lansdowne Partners with a $74.3 million position. Other investors bullish on the company included Holocene Advisors, D E Shaw, and Gotham Asset Management.
Since Eaton Corporation plc (NYSE:ETN) has faced a decline in interest from the smart money, it's easy to see that there is a sect of money managers that decided to sell off their full holdings heading into Q3. Interestingly, Javier Velazquez's Albar Capital said goodbye to the biggest position of the "upper crust" of funds monitored by Insider Monkey, valued at about $7.6 million in stock. John Zaro's fund, Bourgeon Capital, also dropped its stock, about $6.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to Eaton Corporation plc (NYSE:ETN). We will take a look at V.F. Corporation (NYSE:VFC), The Allstate Corporation (NYSE:ALL), The Royal Bank of Scotland Group plc (NYSE:RBS), and NetEase, Inc (NASDAQ:NTES). This group of stocks' market values are closest to ETN's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VFC,32,985424,3 ALL,37,1897886,1 RBS,6,33528,3 NTES,34,3764631,4 Average,27.25,1670367,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.25 hedge funds with bullish positions and the average amount invested in these stocks was $1670 million. That figure was $796 million in ETN's case. The Allstate Corporation (NYSE:ALL) is the most popular stock in this table. On the other hand The Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 6 bullish hedge fund positions. Eaton Corporation plc (NYSE:ETN) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ETN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on ETN were disappointed as the stock returned 0.7% 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 (see the video below) among hedge funds as many of these stocks already outperformed the market so far this year. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.