Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards E*TRADE Financial Corporation (NASDAQ:ETFC) to find out whether it was one of their high conviction long-term ideas.
Is E*TRADE Financial Corporation (NASDAQ:ETFC) an attractive investment today? Investors who are in the know are becoming hopeful. The number of long hedge fund positions inched up by 4 in recent months. Our calculations also showed that ETFC isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s review the key hedge fund action encompassing E*TRADE Financial Corporation (NASDAQ:ETFC).
How are hedge funds trading E*TRADE Financial Corporation (NASDAQ:ETFC)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in ETFC heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of E*TRADE Financial Corporation (NASDAQ:ETFC), with a stake worth $389.2 million reported as of the end of September. Trailing Millennium Management was Citadel Investment Group, which amassed a stake valued at $356.5 million. D E Shaw, Southpoint Capital Advisors, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
Now, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the largest position in E*TRADE Financial Corporation (NASDAQ:ETFC). Arrowstreet Capital had $37.1 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also made a $25.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Louis Bacon’s Moore Global Investments, Robert Pohly’s Samlyn Capital, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to E*TRADE Financial Corporation (NASDAQ:ETFC). These stocks are Arthur J. Gallagher & Co. (NYSE:AJG), TransUnion (NYSE:TRU), C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW), and United Rentals, Inc. (NYSE:URI). This group of stocks’ market values are closest to ETFC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AJG | 26 | 380676 | 4 |
| TRU | 29 | 1758803 | 0 |
| CHRW | 28 | 457937 | -2 |
| URI | 48 | 1131355 | 8 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $932 million. That figure was $1.48 billion in ETFC’s case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Arthur J. Gallagher & Co. (NYSE:AJG) is the least popular one with only 26 bullish hedge fund positions. E*TRADE Financial Corporation (NASDAQ:ETFC) 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. In this regard URI might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
