Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on E*TRADE Financial Corporation (NASDAQ:ETFC).
E*TRADE Financial Corporation (NASDAQ:ETFC) was in 48 hedge funds’ portfolios at the end of December. ETFC has seen an increase in hedge fund interest of late. There were 44 hedge funds in our database with ETFC holdings at the end of the previous quarter. Our calculations also showed that ETFC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David E. Shaw of D.E. Shaw
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to take a peek at the recent hedge fund action surrounding E*TRADE Financial Corporation (NASDAQ:ETFC).
What have hedge funds been doing with E*TRADE Financial Corporation (NASDAQ:ETFC)?
At the end of the fourth quarter, a total of 48 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ETFC over the last 18 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.
The largest stake in E*TRADE Financial Corporation (NASDAQ:ETFC) was held by D E Shaw, which reported holding $167.5 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $127.6 million position. Other investors bullish on the company included Millennium Management, Southpoint Capital Advisors, and Balyasny Asset Management. In terms of the portfolio weights assigned to each position Azora Capital allocated the biggest weight to E*TRADE Financial Corporation (NASDAQ:ETFC), around 4.62% of its 13F portfolio. Southpoint Capital Advisors is also relatively very bullish on the stock, earmarking 3.35 percent of its 13F equity portfolio to ETFC.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Junto Capital Management, managed by James Parsons, assembled the most valuable position in E*TRADE Financial Corporation (NASDAQ:ETFC). Junto Capital Management had $40.8 million invested in the company at the end of the quarter. Ravi Chopra’s Azora Capital also made a $32.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Emanuel J. Friedman’s EJF Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and Eli Cohen’s Crescent Park Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as E*TRADE Financial Corporation (NASDAQ:ETFC) but similarly valued. These stocks are Reinsurance Group of America Inc (NYSE:RGA), Textron Inc. (NYSE:TXT), FactSet Research Systems Inc. (NYSE:FDS), and Aqua America Inc (NYSE:WTR). All of these stocks’ market caps match ETFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RGA | 27 | 412374 | 1 |
| TXT | 30 | 859950 | 5 |
| FDS | 24 | 225368 | 3 |
| WTR | 21 | 704399 | -14 |
| Average | 25.5 | 550523 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $551 million. That figure was $947 million in ETFC’s case. Textron Inc. (NYSE:TXT) is the most popular stock in this table. On the other hand Aqua America Inc (NYSE:WTR) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks E*TRADE Financial Corporation (NASDAQ:ETFC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately ETFC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ETFC were disappointed as the stock returned -18.3% during the first two months of 2020 (through March 9th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
