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Were These Hedge Funds Right About Selling Eaton Corporation plc (ETN)?

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Asma UL Husna
·6 min read
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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Eaton Corporation plc (NYSE:ETN).

Eaton Corporation plc (NYSE:ETN) was in 34 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. ETN has seen a decrease in support from the world's most elite money managers recently. There were 35 hedge funds in our database with ETN holdings at the end of March. Our calculations also showed that ETN isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

According to most market participants, hedge funds are perceived as unimportant, outdated investment tools of the past. While there are greater than 8000 funds trading at the moment, Our researchers choose to focus on the leaders of this group, around 850 funds. It is estimated that this group of investors command the lion's share of the smart money's total asset base, and by tracking their highest performing picks, Insider Monkey has brought to light many investment strategies that have historically outstripped the S&P 500 index. Insider Monkey's flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let's analyze the fresh hedge fund action encompassing Eaton Corporation plc (NYSE:ETN).

What have hedge funds been doing with Eaton Corporation plc (NYSE:ETN)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ETN over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in Eaton Corporation plc (NYSE:ETN) was held by AQR Capital Management, which reported holding $116.8 million worth of stock at the end of June. It was followed by Levin Easterly Partners with a $96.3 million position. Other investors bullish on the company included Citadel Investment Group, Lansdowne Partners, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Levin Easterly Partners allocated the biggest weight to Eaton Corporation plc (NYSE:ETN), around 4.37% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 2.65 percent of its 13F equity portfolio to ETN.

Due to the fact that Eaton Corporation plc (NYSE:ETN) has faced declining sentiment from hedge fund managers, it's safe to say that there was a specific group of fund managers that slashed their positions entirely in the second quarter. Intriguingly, Phill Gross and Robert Atchinson's Adage Capital Management sold off the biggest investment of the "upper crust" of funds monitored by Insider Monkey, worth close to $64.9 million in stock. Clint Carlson's fund, Carlson Capital, also dropped its stock, about $25.5 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the second quarter.

Let's also examine hedge fund activity in other stocks similar to Eaton Corporation plc (NYSE:ETN). These stocks are Las Vegas Sands Corp. (NYSE:LVS), Canadian Pacific Railway Limited (NYSE:CP), Eni SpA (NYSE:E), Kinder Morgan Inc (NYSE:KMI), Sempra Energy (NYSE:SRE), Snap Inc. (NYSE:SNAP), and The Bank of New York Mellon Corporation (NYSE:BK). This group of stocks' market valuations are closest to ETN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LVS,47,2396746,5 CP,36,1635509,4 E,8,43125,3 KMI,50,1090828,3 SRE,35,635290,8 SNAP,49,1601957,1 BK,48,4431288,-4 Average,39,1690678,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1691 million. That figure was $560 million in ETN's case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 8 bullish hedge fund positions. Eaton Corporation plc (NYSE:ETN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ETN is 59.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on ETN as the stock returned 19.5% since the end of the second quarter (through 10/30) 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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