"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards GrafTech International Ltd. (NYSE:EAF).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let's take a look at the fresh hedge fund action regarding GrafTech International Ltd. (NYSE:EAF).
What does the smart money think about GrafTech International Ltd. (NYSE:EAF)?
At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards EAF over the last 14 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Goodnow Investment Group held the most valuable stake in GrafTech International Ltd. (NYSE:EAF), which was worth $24.9 million at the end of the third quarter. On the second spot was Indus Capital which amassed $22.8 million worth of shares. Moreover, Marshall Wace LLP, Cobalt Capital Management, and Gotham Asset Management were also bullish on GrafTech International Ltd. (NYSE:EAF), allocating a large percentage of their portfolios to this stock.
Since GrafTech International Ltd. (NYSE:EAF) has experienced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedge funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, Principal Global Investors's Columbus Circle Investors dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, comprising an estimated $19.3 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also dropped its stock, about $17.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 8 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks similar to GrafTech International Ltd. (NYSE:EAF). These stocks are Stericycle Inc (NASDAQ:SRCL), Cousins Properties Incorporated (NYSE:CUZ), Copa Holdings, S.A. (NYSE:CPA), and Turquoise Hill Resources Ltd (NYSE:TRQ). This group of stocks' market values resemble EAF's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRCL,19,273799,-1 CUZ,17,53305,3 CPA,15,276932,-4 TRQ,16,837928,-2 Average,16.75,360491,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $109 million in EAF's case. Stericycle Inc (NASDAQ:SRCL) is the most popular stock in this table. On the other hand Copa Holdings, S.A. (NYSE:CPA) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks GrafTech International Ltd. (NYSE:EAF) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately EAF wasn't nearly as popular as these 15 stock and hedge funds that were betting on EAF were disappointed as the stock returned 9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.