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2019 Review: Most Favored Hedge Fund Stocks vs. Ecolab Inc. (ECL)

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Ecolab Inc. (NYSE:ECL) and compare its performance against hedge funds’ favorite stocks.

Is Ecolab Inc. (NYSE:ECL) a buy right now? The best stock pickers are becoming hopeful. The number of long hedge fund positions advanced by 11 recently. 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 at the end of this article for Q2 rankings). ECL was in 38 hedge funds’ portfolios at the end of September. There were 27 hedge funds in our database with ECL positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s view the latest hedge fund action encompassing Ecolab Inc. (NYSE:ECL).

Hedge fund activity in Ecolab Inc. (NYSE:ECL)

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 41% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ECL over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Bill & Melinda Gates Foundation Trust was the largest shareholder of Ecolab Inc. (NYSE:ECL), with a stake worth $864.7 million reported as of the end of September. Trailing Bill & Melinda Gates Foundation Trust was Cantillon Capital Management, which amassed a stake valued at $447.2 million. Impax Asset Management, Eagle Capital Management, and AQR 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 Empirical Capital Partners allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 9.23% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, dishing out 4.35 percent of its 13F equity portfolio to ECL.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Luminus Management, managed by Jonathan Barrett and Paul Segal, established the largest position in Ecolab Inc. (NYSE:ECL). Luminus Management had $25.6 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also made a $7.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Cristan Blackman’s Empirical Capital Partners, Israel Englander’s Millennium Management, and Joel Greenblatt’s Gotham Asset Management.

Let’s also examine 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 Boston Scientific Corporation (NYSE:BSX), Eni SpA (NYSE:E), CSX Corporation (NASDAQ:CSX), and Allergan plc (NYSE:AGN). This group of stocks’ market valuations are closest to ECL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSX 48 2372367 -2
E 5 58328 0
CSX 38 4002726 -8
AGN 81 8207290 1
Average 43 3660178 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $3660 million. That figure was $2169 million in ECL’s case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 5 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on ECL, though not to the same extent, as the stock returned 31.7% in 2019 (as of 12/23) and outperformed the market.
5 Most Popular Stocks Among Hedge Funds
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.

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