Hedge Funds Are Selling Ecolab Inc. (ECL)

Ecolab Inc. (NYSE:ECL) investors should be aware of a decrease in activity from the world’s largest hedge funds lately.

To most shareholders, hedge funds are perceived as unimportant, outdated financial vehicles of the past. While there are over 8000 funds in operation at present, we choose to focus on the elite of this group, close to 450 funds. It is estimated that this group has its hands on the majority of the smart money’s total capital, and by keeping an eye on their highest performing equity investments, we have discovered a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).

Just as key, optimistic insider trading sentiment is a second way to break down the stock market universe. Just as you’d expect, there are many incentives for a corporate insider to downsize shares of his or her company, but just one, very clear reason why they would buy. Plenty of empirical studies have demonstrated the market-beating potential of this method if shareholders know what to do (learn more here).

With these “truths” under our belt, we’re going to take a look at the key action surrounding Ecolab Inc. (NYSE:ECL).

What does the smart money think about Ecolab Inc. (NYSE:ECL)?

In preparation for this quarter, a total of 23 of the hedge funds we track held long positions in this stock, a change of 0% from the previous quarter. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were boosting their stakes meaningfully.

Of the funds we track, Eagle Capital Management, managed by Boykin Curry, holds the biggest position in Ecolab Inc. (NYSE:ECL). Eagle Capital Management has a $767.1 million position in the stock, comprising 4.6% of its 13F portfolio. The second largest stake is held by Michael Larson of Bill & Melinda Gates Foundation Trust, with a $350.1 million position; 1.9% of its 13F portfolio is allocated to the company. Other peers that hold long positions include William von Mueffling’s Cantillon Capital Management, Jason Capello’s Merchants’ Gate Capital and David Gallo’s Valinor Management LLC.

Because Ecolab Inc. (NYSE:ECL) has witnessed bearish sentiment from the smart money, we can see that there exists a select few money managers that decided to sell off their positions entirely heading into Q2. Intriguingly, Ian Simm’s Impax Asset Management cut the biggest investment of the “upper crust” of funds we track, worth about $23.3 million in stock.. Stephen J. Errico’s fund, Locust Wood Capital Advisers, also sold off its stock, about $9.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

What have insiders been doing with Ecolab Inc. (NYSE:ECL)?

Bullish insider trading is at its handiest when the primary stock in question has seen transactions within the past 180 days. Over the last half-year time period, Ecolab Inc. (NYSE:ECL) has seen 1 unique insiders purchasing, and 4 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Ecolab Inc. (NYSE:ECL). These stocks are Zep, Inc. (NYSE:ZEP), Stepan Company (NYSE:SCL), , and Church & Dwight Co., Inc. (NYSE:CHD). All of these stocks are in the cleaning products industry and their market caps are closest to ECL’s market cap.