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Edison International (EIX): Are Hedge Funds Right About This Stock?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated a return of 15.1% over the last 12 months (vs. 5.6% gain for SPY), with 53% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Edison International (NYSE:EIX).

Edison International (NYSE:EIX) was in 25 hedge funds’ portfolios at the end of September. EIX shareholders have witnessed a decrease in hedge fund interest recently. There were 28 hedge funds in our database with EIX holdings at the end of the previous quarter. Our calculations also showed that EIX isn’t among the 30 most popular stocks among hedge funds.

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 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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

Let’s check out the latest hedge fund action encompassing Edison International (NYSE:EIX).

What have hedge funds been doing with Edison International (NYSE:EIX)?

At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EIX over the last 13 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

EIX_dec2018

The largest stake in Edison International (NYSE:EIX) was held by Pzena Investment Management, which reported holding $605.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $222.2 million position. Other investors bullish on the company included Carlson Capital, AQR Capital Management, and Citadel Investment Group.

Because Edison International (NYSE:EIX) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that elected to cut their positions entirely in the third quarter. At the top of the heap, Kevin D. Eng’s Columbus Hill Capital Management said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $32 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund sold off about $26.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 3 funds in the third quarter.

Let’s go over hedge fund activity in other stocks similar to Edison International (NYSE:EIX). We will take a look at TELUS Corporation (NYSE:TU), Teva Pharmaceutical Industries Limited (NYSE:TEVA), Ryanair Holdings plc (NASDAQ:RYAAY), and Best Buy Co., Inc. (NYSE:BBY). This group of stocks’ market valuations are similar to EIX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TU 12 295888 4
TEVA 36 2509183 6
RYAAY 13 318987 4
BBY 27 1563258 -3
Average 22 1171829 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $1.17 billion. That figure was $1.20 billion in EIX’s case. Teva Pharmaceutical Industries Limited (NYSE:TEVA) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 12 bullish hedge fund positions. Edison International (NYSE:EIX) 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. In this regard TEVA might be a better candidate to consider a long position.

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

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