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Did Hedge Funds Make The Right Call On Eaton Vance Corp (EV)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Eaton Vance Corp (NYSE:EV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Eaton Vance Corp (NYSE:EV) the right pick for your portfolio? Investors who are in the know were becoming less confident. The number of bullish hedge fund positions were cut by 4 lately. Our calculations also showed that EV isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

At the moment there are a lot of indicators market participants employ to size up their holdings. Some of the most innovative indicators are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outclass the market by a very impressive amount (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a glance at the recent hedge fund action surrounding Eaton Vance Corp (NYSE:EV).

How are hedge funds trading Eaton Vance Corp (NYSE:EV)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in EV a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Arrowstreet Capital held the most valuable stake in Eaton Vance Corp (NYSE:EV), which was worth $9.7 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $6.1 million worth of shares. Prana Capital Management, Schonfeld Strategic Advisors, and Balyasny 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 Prana Capital Management allocated the biggest weight to Eaton Vance Corp (NYSE:EV), around 1.19% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, earmarking 0.26 percent of its 13F equity portfolio to EV.

Since Eaton Vance Corp (NYSE:EV) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds that slashed their positions entirely in the first quarter. It’s worth mentioning that Qing Li’s Sciencast Management dropped the biggest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $2.2 million in stock. Cliff Asness’s fund, AQR Capital Management, also dumped its stock, about $1.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 4 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Eaton Vance Corp (NYSE:EV). These stocks are Wright Medical Group N.V. (NASDAQ:WMGI), Jefferies Financial Group Inc. (NYSE:JEF), Highwoods Properties Inc (NYSE:HIW), and Grand Canyon Education Inc (NASDAQ:LOPE). All of these stocks’ market caps are similar to EV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMGI 37 877799 -9
JEF 30 401708 -1
HIW 15 101293 -1
LOPE 28 185626 8
Average 27.5 391607 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $37 million in EV’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Highwoods Properties Inc (NYSE:HIW) is the least popular one with only 15 bullish hedge fund positions. Eaton Vance Corp (NYSE:EV) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately EV wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EV investors were disappointed as the stock returned 17.8% since Q1 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.

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Disclosure: None. This article was originally published at Insider Monkey.