Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Eaton Corporation plc (NYSE:ETN).
Eaton Corporation plc (NYSE:ETN) investors should pay attention to an increase in hedge fund sentiment of late. Our calculations also showed that ETN isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Cliff Asness of AQR Capital Management
Let’s take a look at the latest hedge fund action surrounding Eaton Corporation plc (NYSE:ETN).
Hedge fund activity in Eaton Corporation plc (NYSE:ETN)
At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in ETN over the last 13 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Levin Capital Strategies, managed by John A. Levin, holds the largest position in Eaton Corporation plc (NYSE:ETN). Levin Capital Strategies has a $188.8 million position in the stock, comprising 3.2% of its 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $163.2 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Israel Englander’s Millennium Management, Anand Parekh’s Alyeska Investment Group and Robert Polak’s Anchor Bolt Capital.
With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Alyeska Investment Group, managed by Anand Parekh, established the biggest position in Eaton Corporation plc (NYSE:ETN). Alyeska Investment Group had $53.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $49.3 million position during the quarter. The following funds were also among the new ETN investors: Clint Carlson’s Carlson Capital, Alexander Mitchell’s Scopus Asset Management, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Eaton Corporation plc (NYSE:ETN) but similarly valued. These stocks are Aon plc (NYSE:AON), Baker Hughes, a GE company (NYSE:BHGE), V.F. Corporation (NYSE:VFC), and Ross Stores, Inc. (NASDAQ:ROST). All of these stocks’ market caps are closest to ETN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AON | 30 | 3070022 | -7 |
| BHGE | 27 | 711079 | 7 |
| VFC | 32 | 1289343 | 8 |
| ROST | 31 | 966231 | 4 |
| Average | 30 | 1509169 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $1.51 billion. That figure was $965 million in ETN’s case. V.F. Corporation (NYSE:VFC) is the most popular stock in this table. On the other hand Baker Hughes, a GE company (NYSE:BHGE) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Eaton Corporation plc (NYSE:ETN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
