Should You Avoid ABB Ltd (ADR) (ABB)?

ABB Ltd (ADR) (NYSE:ABB) was in 7 hedge funds’ portfolio at the end of the fourth quarter of 2012. ABB shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. There were 14 hedge funds in our database with ABB holdings at the end of the previous quarter.

According to most traders, hedge funds are viewed as underperforming, old financial tools of the past. While there are greater than 8000 funds in operation at present, we hone in on the bigwigs of this club, close to 450 funds. It is estimated that this group controls most of the smart money’s total asset base, and by paying attention to their highest performing picks, we have come up with a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outclassed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).

Equally as key, optimistic insider trading activity is another way to parse down the financial markets. Obviously, there are plenty of reasons for a corporate insider to cut shares of his or her company, but only one, very obvious reason why they would buy. Several academic studies have demonstrated the valuable potential of this tactic if piggybackers know what to do (learn more here).

Consequently, let’s take a gander at the recent action encompassing ABB Ltd (ADR) (NYSE:ABB).

How have hedgies been trading ABB Ltd (ADR) (NYSE:ABB)?

In preparation for this year, a total of 7 of the hedge funds we track were bullish in this stock, a change of -50% from the third quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially.

When looking at the hedgies we track, Levin Capital Strategies, managed by John A. Levin, holds the largest position in ABB Ltd (ADR) (NYSE:ABB). Levin Capital Strategies has a $15 million position in the stock, comprising 0.3% of its 13F portfolio. Coming in second is Dreman Value Management, managed by David Dreman, which held a $5.4 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds with similar optimism include Steven Cohen’s SAC Capital Advisors, Mario Gabelli’s GAMCO Investors and Matthew Lindenbaum’s Basswood Capital.

Because ABB Ltd (ADR) (NYSE:ABB) has faced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of money managers that elected to cut their positions entirely at the end of the year. At the top of the heap, Israel Englander’s Millennium Management sold off the largest stake of the “upper crust” of funds we key on, totaling close to $9.4 million in stock., and Jim Simons of Renaissance Technologies was right behind this move, as the fund sold off about $0.8 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 7 funds at the end of the year.

How have insiders been trading ABB Ltd (ADR) (NYSE:ABB)?

Insider buying is best served when the company in question has experienced transactions within the past 180 days. Over the last half-year time period, ABB Ltd (ADR) (NYSE:ABB) has experienced zero unique insiders buying, and zero insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to ABB Ltd (ADR) (NYSE:ABB). These stocks are REGAL-BELOIT CORPORATION (NYSE:RBC), Nidec Corporation (ADR) (NYSE:NJ), AMETEK, Inc. (NYSE:AME), Rockwell Automation (NYSE:ROK), and Eaton Corporation, PLC Ordinary Shares (NYSE:ETN). This group of stocks belong to the industrial electrical equipment industry and their market caps match ABB’s market cap.