Hedge Funds Are Dumping TE Connectivity Ltd. (TEL)

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards TE Connectivity Ltd. (NYSE:TEL) and see how it was affected.

TE Connectivity Ltd. (NYSE:TEL) has experienced a decrease in support from the world’s most elite money managers of late. At the end of this article we will also compare TEL to other stocks, including Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), Sempra Energy (NYSE:SRE), and PPG Industries, Inc. (NYSE:PPG) to get a better sense of its popularity.

Follow Te Connectivity Ltd. (NYSE:TEL)

At the moment there are a large number of signals stock traders can use to size up their holdings. A pair of the less utilized signals are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the best picks of the best money managers can outperform the market by a very impressive margin (see the details here).

Keeping this in mind, let’s go over the recent action regarding TE Connectivity Ltd. (NYSE:TEL).

What have hedge funds been doing with TE Connectivity Ltd. (NYSE:TEL)?

Heading into Q4, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from one quarter earlier. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC has the largest position in TE Connectivity Ltd. (NYSE:TEL), worth close to $425.8 million, corresponding to 3.7% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $107.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions encompass D. E. Shaw’s D E Shaw, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management.

Seeing as TE Connectivity Ltd. (NYSE:TEL) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of funds that slashed their entire stakes by the end of the third quarter. Interestingly, Jim Simons’s Renaissance Technologies cut the largest position of all the hedgies tracked by Insider Monkey, valued at close to $13.2 million in stock. George Hall’s fund, Clinton Group, also said goodbye to its stock, about $8.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 10 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to TE Connectivity Ltd. (NYSE:TEL). These stocks are Eaton Corporation, PLC Ordinary Shares (NYSE:ETN), Sempra Energy (NYSE:SRE), PPG Industries, Inc. (NYSE:PPG), and McGraw Hill Financial Inc (NYSE:MHFI). This group of stocks’ market valuations are similar to TEL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETN 41 985054 -5
SRE 28 968933 -5
PPG 51 1624847 5
MHFI 56 2584172 5

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $1541 million. That figure was $1265 million in TEL’s case. McGraw Hill Financial Inc (NYSE:MHFI) is the most popular stock in this table with 56 funds holding shares at the end of September. On the other hand Sempra Energy (NYSE:SRE) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks TE Connectivity Ltd. (NYSE:TEL) is even less popular than SRE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.