We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Ecolab Inc. (NYSE:ECL).
Ecolab Inc. (NYSE:ECL) has seen an increase in hedge fund interest recently. Our calculations also showed that ECL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are assumed to be unimportant, old financial vehicles of years past. While there are more than 8000 funds in operation at the moment, Our researchers look at the moguls of this group, about 850 funds. It is estimated that this group of investors orchestrate the majority of the hedge fund industry’s total asset base, and by watching their top picks, Insider Monkey has discovered many investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Boykin Curry of Eagle Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the fresh hedge fund action regarding Ecolab Inc. (NYSE:ECL).
How are hedge funds trading Ecolab Inc. (NYSE:ECL)?
At Q4’s end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ECL 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.
Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Ecolab Inc. (NYSE:ECL), which was worth $842.7 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $426.4 million worth of shares. Impax Asset Management, AQR Capital Management, and Eagle Capital Management 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 Empirical Capital Partners allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 7.85% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, designating 3.97 percent of its 13F equity portfolio to ECL.
Consequently, specific money managers have been driving this bullishness. Renaissance Technologies, founded by Jim Simons, initiated the largest position in Ecolab Inc. (NYSE:ECL). Renaissance Technologies had $53.4 million invested in the company at the end of the quarter. Jinghua Yan’s TwinBeech Capital also initiated a $3.6 million position during the quarter. The other funds with brand new ECL positions are John Nevin Jr’s Ayrshire Capital Management, David Costen Haley’s HBK Investments, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Ecolab Inc. (NYSE:ECL) but similarly valued. These stocks are Global Payments Inc (NYSE:GPN), Deere & Company (NYSE:DE), The Sherwin-Williams Company (NYSE:SHW), and Biogen Inc. (NASDAQ:BIIB). All of these stocks’ market caps are closest to ECL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GPN | 64 | 4063969 | -4 |
| DE | 50 | 1403325 | 9 |
| SHW | 55 | 1847137 | 4 |
| BIIB | 61 | 5162729 | 8 |
| Average | 57.5 | 3119290 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 57.5 hedge funds with bullish positions and the average amount invested in these stocks was $3119 million. That figure was $2302 million in ECL’s case. Global Payments Inc (NYSE:GPN) is the most popular stock in this table. On the other hand Deere & Company (NYSE:DE) is the least popular one with only 50 bullish hedge fund positions. Compared to these stocks Ecolab Inc. (NYSE:ECL) is even less popular than DE. Hedge funds clearly dropped the ball on ECL as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on ECL as the stock returned -3.3% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
