Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Edison International (NYSE:EIX)? The smart money sentiment can provide an answer to this question.
Edison International (NYSE:EIX) shareholders have witnessed a decrease in hedge fund sentiment lately. Edison International (NYSE:EIX) was in 18 hedge funds’ portfolios at the end of June. The all time high for this statistic is 37. Our calculations also showed that EIX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to analyze the new hedge fund action regarding Edison International (NYSE:EIX).
Do Hedge Funds Think EIX Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -49% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in EIX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the number one position in Edison International (NYSE:EIX). Pzena Investment Management has a $850.7 million position in the stock, comprising 3.3% of its 13F portfolio. The second largest stake is held by Zimmer Partners, managed by Stuart J. Zimmer, which holds a $260.2 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions contain Phill Gross and Robert Atchinson’s Adage Capital Management, Cliff Asness’s AQR Capital Management and Jos Shaver’s Electron Capital Partners. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Edison International (NYSE:EIX), around 3.5% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, setting aside 3.31 percent of its 13F equity portfolio to EIX.
Because Edison International (NYSE:EIX) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of money managers that elected to cut their full holdings in the second quarter. Intriguingly, Ken Griffin’s Citadel Investment Group cut the largest investment of the 750 funds tracked by Insider Monkey, valued at about $96.8 million in stock. Steven Tananbaum’s fund, GoldenTree Asset Management, also cut its stock, about $8.6 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 17 funds in the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Edison International (NYSE:EIX). These stocks are Extra Space Storage, Inc. (NYSE:EXR), Kellogg Company (NYSE:K), Paycom Software Inc (NYSE:PAYC), Western Digital Corporation (NASDAQ:WDC), Royal Caribbean Cruises Ltd. (NYSE:RCL), Dover Corporation (NYSE:DOV), and Caesars Entertainment Inc. (NASDAQ:CZR). This group of stocks’ market values match EIX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| EXR | 21 | 176013 | -7 |
| K | 32 | 482871 | 0 |
| PAYC | 39 | 1149714 | -7 |
| WDC | 57 | 2114351 | -1 |
| RCL | 42 | 596573 | 0 |
| DOV | 29 | 700034 | 3 |
| CZR | 73 | 1839888 | -3 |
| Average | 41.9 | 1008492 | -2.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.9 hedge funds with bullish positions and the average amount invested in these stocks was $1008 million. That figure was $1387 million in EIX’s case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Extra Space Storage, Inc. (NYSE:EXR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Edison International (NYSE:EIX) is even less popular than EXR. Our overall hedge fund sentiment score for EIX is 2.6. 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. Hedge funds clearly dropped the ball on EIX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on EIX as the stock returned 13.4% since Q2 (through November 5th) and outperformed the market by an even larger margin.
Follow Edison International (NYSE:EIX)
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Disclosure: None. This article was originally published at Insider Monkey.
