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Did Hedge Funds Make The Right Call On Edison International (EIX)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Edison International (NYSE:EIX) based on that data and determine whether they were really smart about the stock.

Edison International (NYSE:EIX) shareholders have witnessed a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that EIX 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the key hedge fund action regarding Edison International (NYSE:EIX).

How are hedge funds trading Edison International (NYSE:EIX)?

Heading into the second quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in EIX over the last 18 quarters. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Edison International (NYSE:EIX), which was worth $283.1 million at the end of the third quarter. On the second spot was Canyon Capital Advisors which amassed $159.7 million worth of shares. Citadel Investment Group, Zimmer Partners, and Renaissance Technologies 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 Inherent Group allocated the biggest weight to Edison International (NYSE:EIX), around 20.36% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, earmarking 7.4 percent of its 13F equity portfolio to EIX.

Judging by the fact that Edison International (NYSE:EIX) has faced bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that slashed their full holdings last quarter. Intriguingly, Robert Pitts’s Steadfast Capital Management sold off the largest investment of the 750 funds monitored by Insider Monkey, worth close to $84.9 million in stock, and William B. Gray’s Orbis Investment Management was right behind this move, as the fund cut about $34 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 5 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Edison International (NYSE:EIX). We will take a look at Seattle Genetics, Inc. (NASDAQ:SGEN), AutoZone, Inc. (NYSE:AZO), PPG Industries, Inc. (NYSE:PPG), and Credit Suisse Group AG (NYSE:CS). All of these stocks’ market caps are closest to EIX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SGEN 27 6153689 -9
AZO 45 1355325 5
PPG 35 393229 0
CS 11 134498 1
Average 29.5 2009185 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $2009 million. That figure was $1046 million in EIX’s case. AutoZone, Inc. (NYSE:AZO) is the most popular stock in this table. On the other hand Credit Suisse Group AG (NYSE:CS) is the least popular one with only 11 bullish hedge fund positions. Edison International (NYSE:EIX) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately EIX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EIX investors were disappointed as the stock returned -0.9% during the second quarter 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.