At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Ecolab Inc. (NYSE:ECL).
Is ECL a good stock to buy now? Ecolab Inc. (NYSE:ECL) shareholders have witnessed an increase in hedge fund sentiment lately. Ecolab Inc. (NYSE:ECL) was in 52 hedge funds’ portfolios at the end of September. The all time high for this statistics is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ECL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.
Tom Gayner of Markel Gayner Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to analyze the new hedge fund action regarding Ecolab Inc. (NYSE:ECL).
How have hedgies been trading Ecolab Inc. (NYSE:ECL)?
At Q3’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 42 hedge funds held shares or bullish call options in ECL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Ecolab Inc. (NYSE:ECL) was held by Bill & Melinda Gates Foundation Trust, which reported holding $872.6 million worth of stock at the end of September. It was followed by Cantillon Capital Management with a $440.2 million position. Other investors bullish on the company included Impax Asset Management, AQR Capital Management, and Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 3.95% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, dishing out 3.68 percent of its 13F equity portfolio to ECL.
As industrywide interest jumped, key hedge funds have jumped into Ecolab Inc. (NYSE:ECL) headfirst. Holocene Advisors, managed by Brandon Haley, created the largest position in Ecolab Inc. (NYSE:ECL). Holocene Advisors had $45.7 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also made a $24.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Mikal Patel’s Oribel Capital Management, Michael Cowley’s Sandbar Asset Management, and D. E. Shaw’s D E Shaw.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ecolab Inc. (NYSE:ECL) but similarly valued. We will take a look at Intercontinental Exchange Inc (NYSE:ICE), Takeda Pharmaceutical Company Limited (NYSE:TAK), The Progressive Corporation (NYSE:PGR), Humana Inc (NYSE:HUM), Boston Scientific Corporation (NYSE:BSX), Norfolk Southern Corp. (NYSE:NSC), and General Electric Company (NYSE:GE). This group of stocks’ market values are closest to ECL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ICE | 64 | 2904596 | 4 |
| TAK | 19 | 733854 | 1 |
| PGR | 47 | 1692254 | -3 |
| HUM | 61 | 4804339 | -12 |
| BSX | 61 | 2536996 | -5 |
| NSC | 47 | 715468 | 0 |
| GE | 45 | 2747958 | -12 |
| Average | 49.1 | 2305066 | -3.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.1 hedge funds with bullish positions and the average amount invested in these stocks was $2305 million. That figure was $2271 million in ECL’s case. Intercontinental Exchange Inc (NYSE:ICE) is the most popular stock in this table. On the other hand Takeda Pharmaceutical Company Limited (NYSE:TAK) is the least popular one with only 19 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECL is 76.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on ECL, though not to the same extent, as the stock returned 9.7% since Q3 (through December 2nd) and outperformed the market as well.
Follow Ecolab Inc. (NYSE:ECL)
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Disclosure: None. This article was originally published at Insider Monkey.
