Edison International (EIX): Are Hedge Funds Right To Stay Away From This Stock?

After a lengthy stretch of outperformance, small-cap stocks suffered from July 2015 through June 2016, as heightened global economic fears led investors to flee to the safe havens of large-cap stocks and other instruments. Those stocks outperformed small-caps by about 10 percentage points during that time, with small-cap healthcare stocks being particularly hard hit. However, the tide has since turned in a big way, as evidenced by small-caps toppling their large-cap peers by 5 percentage points in the third quarter, and by another 5 percentage points in the first seven weeks of the fourth quarter. In this article, we’ll analyze how this shift affected hedge funds’ Q3 trading of Edison International (NYSE:EIX) and see how the stock is affected by the recent hedge fund activity.

Edison International (NYSE:EIX) was in 19 hedge funds’ portfolios at the end of the third quarter of 2016. EIX has experienced a decrease in support from the world’s most elite money managers recently. There were 20 hedge funds in our database with EIX positions at the end of the previous quarter. At the end of this article we will also compare EIX to other stocks including LinkedIn Corp (NYSE:LNKD), Archer Daniels Midland Company (NYSE:ADM), and Equity Residential (NYSE:EQR) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

What have hedge funds been doing with Edison International (NYSE:EIX)?

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a 5% dip from the previous quarter and the second straight quarter with a decline in hedgie ownership. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Edison International (NYSE:EIX). AQR Capital Management has a $128.4 million position in the stock. The second most bullish fund manager is Renaissance Technologies, managed by Jim Simons, which holds a $115.2 million position. Other peers that hold long positions encompass Richard S. Pzena’s Pzena Investment Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Israel Englander’s Millennium Management.

Judging by the fact that Edison International (NYSE:EIX) has experienced declining sentiment from the smart money, it’s safe to say that there lies a certain “tier” of money managers that slashed their positions entirely by the end of the third quarter. Interestingly, First Eagle Investment Management dumped the largest position of the 700 funds tracked by Insider Monkey, totaling about $8.1 million in stock, and Alex Snow’s Lansdowne Partners was right behind this move, as the fund cut about $7.4 million worth of shares. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 fund by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Edison International (NYSE:EIX) but similarly valued. We will take a look at LinkedIn Corp (NYSE:LNKD), Archer Daniels Midland Company (NYSE:ADM), Equity Residential (NYSE:EQR), and Norfolk Southern Corp. (NYSE:NSC). This group of stocks’ market caps resemble EIX’s market cap.

As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1.77 billion. That figure was $640 million in EIX’s case. LinkedIn Corp (NYSE:LNKD) is the most popular stock in this table. On the other hand Equity Residential (NYSE:EQR) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Edison International (NYSE:EIX) is even less popular than EQR and has less money invested in it than any of the other four stocks. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to study it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: None