2019 Review: Most Favored Hedge Fund Stocks vs. Emerson Electric Co. (EMR)

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 Emerson Electric Co. (NYSE:EMR) and compare its performance against hedge funds’ favorite stocks.

Emerson Electric Co. (NYSE:EMR) investors should pay attention to an increase in hedge fund interest in recent months. Our calculations also showed that EMR 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).

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.


Louis Bacon Moore of Moore Capital

We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s check out the new hedge fund action regarding Emerson Electric Co. (NYSE:EMR).

What does smart money think about Emerson Electric Co. (NYSE:EMR)?

At Q3’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EMR over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Two Sigma Advisors was the largest shareholder of Emerson Electric Co. (NYSE:EMR), with a stake worth $83.6 million reported as of the end of September. Trailing Two Sigma Advisors was Senator Investment Group, which amassed a stake valued at $78.6 million. AQR Capital Management, Interval Partners, and TOMS Capital 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 TOMS Capital allocated the biggest weight to Emerson Electric Co. (NYSE:EMR), around 7.41% of its 13F portfolio. Bronson Point Partners is also relatively very bullish on the stock, dishing out 5.98 percent of its 13F equity portfolio to EMR.

As aggregate interest increased, some big names were leading the bulls’ herd. Interval Partners, managed by Gregg Moskowitz, created the largest position in Emerson Electric Co. (NYSE:EMR). Interval Partners had $56.9 million invested in the company at the end of the quarter. Benjamin Pass’s TOMS Capital also made a $46.8 million investment in the stock during the quarter. The other funds with brand new EMR positions are David E. Shaw’s D E Shaw, Alexander Mitchell’s Scopus Asset Management, and Louis Bacon’s Moore Global Investments.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Emerson Electric Co. (NYSE:EMR) but similarly valued. These stocks are HCA Healthcare Inc (NYSE:HCA), Marriott International Inc (NASDAQ:MAR), Truist Financial Corporation (NYSE:BBT), and Dollar General Corp. (NYSE:DG). This group of stocks’ market values resemble EMR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HCA 55 2621149 4
MAR 37 2446310 10
BBT 26 370776 3
DG 45 2157250 8
Average 40.75 1898871 6.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $1899 million. That figure was $594 million in EMR’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand Truist Financial Corporation (NYSE:BBT) is the least popular one with only 26 bullish hedge fund positions. Emerson Electric Co. (NYSE:EMR) 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 EMR, though not to the same extent, as the stock returned 32.4% 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.