Did Hedge Funds Make The Right Call On TE Connectivity Ltd. (TEL)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards TE Connectivity Ltd. (NYSE:TEL) and determine whether hedge funds skillfully traded this stock.

Is TE Connectivity Ltd. (NYSE:TEL) a safe investment now? The smart money was in a pessimistic mood. The number of bullish hedge fund positions decreased by 11 lately. Our calculations also showed that TEL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of gauges investors have at their disposal to grade publicly traded companies. A duo of the less known gauges are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the best hedge fund managers can beat the S&P 500 by a very impressive amount (see the details here).

Phill Gross of Adage Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the key hedge fund action surrounding TE Connectivity Ltd. (NYSE:TEL).

How have hedgies been trading TE Connectivity Ltd. (NYSE:TEL)?

At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in TEL over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Generation Investment Management was the largest shareholder of TE Connectivity Ltd. (NYSE:TEL), with a stake worth $474.6 million reported as of the end of September. Trailing Generation Investment Management was First Pacific Advisors LLC, which amassed a stake valued at $268.7 million. Rivulet Capital, AQR Capital Management, and Adage Capital Management 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 12.25% of its 13F portfolio. Rivulet Capital is also relatively very bullish on the stock, setting aside 8.45 percent of its 13F equity portfolio to TEL.

Judging by the fact that TE Connectivity Ltd. (NYSE:TEL) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers who sold off their entire stakes last quarter. It’s worth mentioning that Anand Parekh’s Alyeska Investment Group sold off the largest position of all the hedgies monitored by Insider Monkey, comprising close to $56.2 million in stock. Renaissance Technologies, also sold off its stock, about $42.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 11 funds last quarter.

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. We will take a look at American International Group Inc (NYSE:AIG), Verisign, Inc. (NASDAQ:VRSN), EOG Resources Inc (NYSE:EOG), and Zimmer Biomet Holdings Inc (NYSE:ZBH). All of these stocks’ market caps match TEL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.75 hedge funds with bullish positions and the average amount invested in these stocks was $2135 million. That figure was $1381 million in TEL’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Verisign, Inc. (NASDAQ:VRSN) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks TE Connectivity Ltd. (NYSE:TEL) is even less popular than VRSN. Hedge funds clearly dropped the ball on TEL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on TEL as the stock returned 30.3% in the second quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.