Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Edison International (NYSE:EIX).
Is Edison International (NYSE:EIX) undervalued? Money managers are turning less bullish. The number of long hedge fund positions went down by 6 lately. Our calculations also showed that EIX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 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 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 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.
Bruce Kovner of Caxton Associates
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the latest hedge fund action surrounding Edison International (NYSE:EIX).
Hedge fund activity in Edison International (NYSE:EIX)
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in EIX over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Pzena Investment Management was the largest shareholder of Edison International (NYSE:EIX), with a stake worth $429.1 million reported as of the end of September. Trailing Pzena Investment Management was Renaissance Technologies, which amassed a stake valued at $297.5 million. Zimmer Partners, Steadfast Capital Management, and Adage Capital 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 Inherent Group allocated the biggest weight to Edison International (NYSE:EIX), around 23.15% of its portfolio. Shelter Harbor Advisors is also relatively very bullish on the stock, earmarking 5.71 percent of its 13F equity portfolio to EIX.
Because Edison International (NYSE:EIX) has experienced falling interest from hedge fund managers, it’s safe to say that there was a specific group of funds who sold off their full holdings by the end of the third quarter. Intriguingly, Josh Donfeld and David Rogers’s Castle Hook Partners dropped the biggest position of all the hedgies followed by Insider Monkey, comprising about $79.3 million in stock, and Kevin D. Eng’s Columbus Hill Capital Management was right behind this move, as the fund cut about $61.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Edison International (NYSE:EIX). We will take a look at Dollar Tree, Inc. (NASDAQ:DLTR), T. Rowe Price Group, Inc. (NASDAQ:TROW), IHS Markit Ltd. (NYSE:INFO), and Hilton Worldwide Holdings Inc (NYSE:HLT). All of these stocks’ market caps match EIX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DLTR | 49 | 1912359 | 0 |
| TROW | 23 | 209393 | -7 |
| INFO | 30 | 859361 | 2 |
| HLT | 48 | 3928940 | 4 |
| Average | 37.5 | 1727513 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.5 hedge funds with bullish positions and the average amount invested in these stocks was $1728 million. That figure was $1709 million in EIX’s case. Dollar Tree, Inc. (NASDAQ:DLTR) is the most popular stock in this table. On the other hand T. Rowe Price Group, Inc. (NASDAQ:TROW) is the least popular one with only 23 bullish hedge fund positions. Edison International (NYSE:EIX) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EIX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EIX investors were disappointed as the stock returned -8.4% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
