Were Hedge Funds Right About General Electric Company (GE)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in General Electric Company (NYSE:GE)? The smart money sentiment can provide an answer to this question.

General Electric Company (NYSE:GE) was in 60 hedge funds’ portfolios at the end of December. GE has seen an increase in hedge fund sentiment lately. There were 58 hedge funds in our database with GE holdings at the end of the previous quarter. Our calculations also showed that GE 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).

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 41 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.

Boykin Curry of Eagle Capital

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. Federal Reserve and Central Banks all around world are printing money like there is no tomorrow, so we check out this this precious metals expert’s stock pick. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. Keeping this in mind let’s view the new hedge fund action regarding General Electric Company (NYSE:GE).

How are hedge funds trading General Electric Company (NYSE:GE)?

At the end of the fourth quarter, a total of 60 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. On the other hand, there were a total of 59 hedge funds with a bullish position in GE a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, Eagle Capital Management held the most valuable stake in General Electric Company (NYSE:GE), which was worth $1357.4 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $844 million worth of shares. Pzena Investment Management, Trian Partners, and Southeastern Asset 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 Southeastern Asset Management allocated the biggest weight to General Electric Company (NYSE:GE), around 8.09% of its 13F portfolio. Trian Partners is also relatively very bullish on the stock, earmarking 7.56 percent of its 13F equity portfolio to GE.

Now, key money managers have been driving this bullishness. Hitchwood Capital Management, managed by James Crichton, initiated the largest position in General Electric Company (NYSE:GE). Hitchwood Capital Management had $46.9 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also initiated a $44.6 million position during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Alexander Mitchell’s Scopus Asset Management.

Let’s now review hedge fund activity in other stocks similar to General Electric Company (NYSE:GE). These stocks are British American Tobacco plc (NYSE:BTI), CVS Caremark Corporation (NYSE:CVS), Altria Group Inc (NYSE:MO), and U.S. Bancorp (NYSE:USB). This group of stocks’ market valuations resemble GE’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $3003 million. That figure was $6211 million in GE’s case. CVS Caremark Corporation (NYSE:CVS) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks General Electric Company (NYSE:GE) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 1.0% in 2020 through April 20th and still beat the market by 11 percentage points. Unfortunately GE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GE were disappointed as the stock returned -41.6% during the three months of 2020 (through April 20th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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.