Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Eaton Vance Corp (NYSE:EV).
Is Eaton Vance Corp (NYSE:EV) a good stock to buy now? Hedge funds are getting more optimistic. The number of long hedge fund bets increased by 7 in recent months. Our calculations also showed that EV isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). EV was in 24 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 17 hedge funds in our database with EV holdings at the end of the previous quarter.
If you’d ask most shareholders, hedge funds are assumed to be unimportant, old financial tools of years past. While there are over 8000 funds trading at present, We choose to focus on the moguls of this group, around 850 funds. It is estimated that this group of investors direct the majority of the hedge fund industry’s total capital, and by following their unrivaled equity investments, Insider Monkey has revealed various investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Noam Gottesman of GLG Partners
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the latest hedge fund action regarding Eaton Vance Corp (NYSE:EV).
What does smart money think about Eaton Vance Corp (NYSE:EV)?
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from the previous quarter. The graph below displays the number of hedge funds with bullish position in EV over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management has the largest position in Eaton Vance Corp (NYSE:EV), worth close to $16.9 million, corresponding to less than 0.1%% of its total 13F portfolio. Coming in second is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $13.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Noam Gottesman’s GLG Partners, D. E. Shaw’s D E Shaw and Qing Li’s Sciencast Management. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Eaton Vance Corp (NYSE:EV), around 0.81% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, setting aside 0.58 percent of its 13F equity portfolio to EV.
As aggregate interest increased, key hedge funds have jumped into Eaton Vance Corp (NYSE:EV) headfirst. Sciencast Management, managed by Qing Li, assembled the most outsized position in Eaton Vance Corp (NYSE:EV). Sciencast Management had $2.2 million invested in the company at the end of the quarter. Peter Seuss’s Prana Capital Management also made a $2 million investment in the stock during the quarter. The following funds were also among the new EV investors: Cliff Asness’s AQR Capital Management, Ray Dalio’s Bridgewater Associates, and Renee Yao’s Neo Ivy Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Eaton Vance Corp (NYSE:EV) but similarly valued. These stocks are JetBlue Airways Corporation (NASDAQ:JBLU), Smartsheet Inc. (NYSE:SMAR), First Industrial Realty Trust, Inc. (NYSE:FR), and Macy’s, Inc. (NYSE:M). This group of stocks’ market caps match EV’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JBLU | 35 | 668369 | 9 |
| SMAR | 44 | 1652600 | -6 |
| FR | 19 | 204822 | 2 |
| M | 32 | 861446 | 0 |
| Average | 32.5 | 846809 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $847 million. That figure was $58 million in EV’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 19 bullish hedge fund positions. Eaton Vance Corp (NYSE:EV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately EV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EV investors were disappointed as the stock returned -33.4% during the same time period 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.
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.
