Did Hedge Funds Make The Right Call On GrafTech International Ltd. (EAF) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtGrafTech International Ltd. (NYSE:EAF) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

GrafTech International Ltd. (NYSE:EAF) investors should pay attention to a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that EAF 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.

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Donald Yacktman of Yacktman Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. With all of this in mind let’s check out the fresh hedge fund action regarding GrafTech International Ltd. (NYSE:EAF).

What have hedge funds been doing with GrafTech International Ltd. (NYSE:EAF)?

At Q1’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in EAF over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Yacktman Asset Management was the largest shareholder of GrafTech International Ltd. (NYSE:EAF), with a stake worth $42.8 million reported as of the end of September. Trailing Yacktman Asset Management was Arrowstreet Capital, which amassed a stake valued at $25.4 million. Indus Capital, AQR Capital Management, and Goodnow Investment Group 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 Indus Capital allocated the biggest weight to GrafTech International Ltd. (NYSE:EAF), around 3.77% of its 13F portfolio. Anchor Bolt Capital is also relatively very bullish on the stock, designating 1.75 percent of its 13F equity portfolio to EAF.

Judging by the fact that GrafTech International Ltd. (NYSE:EAF) has faced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of fund managers that decided to sell off their positions entirely last quarter. Interestingly, Mohnish Pabrai’s Mohnish Pabrai dumped the largest position of all the hedgies followed by Insider Monkey, valued at close to $51.7 million in stock. Noam Gottesman’s fund, GLG Partners, also dumped its stock, about $12.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 10 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as GrafTech International Ltd. (NYSE:EAF) but similarly valued. We will take a look at Allakos Inc. (NASDAQ:ALLK), Cohen & Steers, Inc. (NYSE:CNS), Rapid7 Inc (NASDAQ:RPD), and FGL Holdings (NYSE:FG). This group of stocks’ market valuations are similar to EAF’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLK 12 207018 -3
CNS 20 67034 4
RPD 16 146199 -7
FG 26 210333 9
Average 18.5 157646 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $158 million. That figure was $126 million in EAF’s case. FGL Holdings (NYSE:FG) is the most popular stock in this table. On the other hand Allakos Inc. (NASDAQ:ALLK) is the least popular one with only 12 bullish hedge fund positions. GrafTech International Ltd. (NYSE:EAF) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately EAF wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EAF were disappointed as the stock returned -1.6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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