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GrafTech International Ltd. (EAF): Hedge Funds Taking Some Chips Off The Table

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. In this article we are going to take a look at smart money sentiment towards GrafTech International Ltd. (NYSE:EAF).

GrafTech International Ltd. (NYSE:EAF) investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. EAF was in 23 hedge funds’ portfolios at the end of the first quarter of 2020. There were 33 hedge funds in our database with EAF positions at the end of the previous quarter. 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.

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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Donald Yacktman of Yacktman Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s view the recent hedge fund action surrounding GrafTech International Ltd. (NYSE:EAF).

How are hedge funds trading GrafTech International Ltd. (NYSE:EAF)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -30% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards EAF over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Yacktman Asset Management held the most valuable stake in GrafTech International Ltd. (NYSE:EAF), which was worth $42.8 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $25.4 million worth of shares. 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, dishing out 1.75 percent of its 13F equity portfolio to EAF.

Since GrafTech International Ltd. (NYSE:EAF) has witnessed falling interest from the smart money, it’s easy to see that there lies a certain “tier” of funds who sold off their positions entirely by the end of the first quarter. Intriguingly, Mohnish Pabrai’s Mohnish Pabrai dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $51.7 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund cut about $12.9 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 10 funds by the end of the first quarter.

Let’s go over hedge fund activity in other stocks similar to GrafTech International Ltd. (NYSE:EAF). These stocks are Allakos Inc. (NASDAQ:ALLK), Cohen & Steers, Inc. (NYSE:CNS), Rapid7 Inc (NASDAQ:RPD), and FGL Holdings (NYSE:FG). This group of stocks’ market values match EAF’s market value.

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 13.9% in 2020 through June 10th but beat the market by 14.2 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 5.6% 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.