It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in General Electric Company (NYSE:GE).
Is General Electric Company (NYSE:GE) a good investment today? Hedge funds are selling. The number of bullish hedge fund positions retreated by 5 recently. Our calculations also showed that GE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Boykin Curry of Eagle Capital
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a look at the key hedge fund action encompassing General Electric Company (NYSE:GE).
What does smart money think about General Electric Company (NYSE:GE)?
Heading into the fourth quarter of 2019, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GE over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eagle Capital Management was the largest shareholder of General Electric Company (NYSE:GE), with a stake worth $1104.4 million reported as of the end of September. Trailing Eagle Capital Management was Trian Partners, which amassed a stake valued at $574.2 million. Pzena Investment Management, Renaissance Technologies, and Southeastern Asset 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 Key Square Capital Management allocated the biggest weight to General Electric Company (NYSE:GE), around 11.6% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, designating 7.36 percent of its 13F equity portfolio to GE.
Seeing as General Electric Company (NYSE:GE) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds who sold off their positions entirely by the end of the third quarter. Intriguingly, Rob Citrone’s Discovery Capital Management cut the largest position of the “upper crust” of funds followed by Insider Monkey, comprising about $25.5 million in stock. Charles Davidson and Joseph Jacobs’s fund, Wexford Capital, also said goodbye to its stock, about $20.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to General Electric Company (NYSE:GE). These stocks are Altria Group Inc (NYSE:MO), CME Group Inc (NASDAQ:CME), Goldman Sachs Group, Inc. (NYSE:GS), and Chubb Limited (NYSE:CB). This group of stocks’ market caps are closest to GE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MO | 47 | 1364557 | 9 |
| CME | 46 | 2245287 | 7 |
| GS | 72 | 8237468 | 11 |
| CB | 26 | 612921 | 1 |
| Average | 47.75 | 3115058 | 7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 47.75 hedge funds with bullish positions and the average amount invested in these stocks was $3115 million. That figure was $4455 million in GE’s case. Goldman Sachs Group, Inc. (NYSE:GS) is the most popular stock in this table. On the other hand Chubb Limited (NYSE:CB) is the least popular one with only 26 bullish hedge fund positions. General Electric Company (NYSE:GE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on GE as the stock returned 53.9% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
