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Hedge Funds Never Been This Bullish On Ecolab Inc. (ECL)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Ecolab Inc. (NYSE:ECL) and determine whether hedge funds skillfully traded this stock.

Ecolab Inc. (NYSE:ECL) investors should pay attention to an increase in hedge fund sentiment lately. Ecolab Inc. (NYSE:ECL) was in 46 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 38 hedge funds in our database with ECL positions at the end of the first quarter. Our calculations also showed that ECL isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the key hedge fund action regarding Ecolab Inc. (NYSE:ECL).

What have hedge funds been doing with Ecolab Inc. (NYSE:ECL)?

At the end of the second quarter, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ECL over the last 20 quarters. So, let’s see 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 $868.7 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $442.8 million worth of shares. Impax Asset Management, AQR Capital Management, and Markel Gayner Asset 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 4.86% of its 13F portfolio. Cantillon Capital Management is also relatively very bullish on the stock, setting aside 3.85 percent of its 13F equity portfolio to ECL.

Consequently, key money managers have jumped into Ecolab Inc. (NYSE:ECL) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, assembled the most outsized position in Ecolab Inc. (NYSE:ECL). Adage Capital Management had $36.2 million invested in the company at the end of the quarter. James Parsons’s Junto Capital Management also initiated a $32.5 million position during the quarter. The following funds were also among the new ECL investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ray Dalio’s Bridgewater Associates, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Ecolab Inc. (NYSE:ECL) but similarly valued. These stocks are Takeda Pharmaceutical Company Limited (NYSE:TAK), U.S. Bancorp (NYSE:USB), Applied Materials, Inc. (NASDAQ:AMAT), Illinois Tool Works Inc. (NYSE:ITW), America Movil SAB de CV (NYSE:AMX), The Southern Company (NYSE:SO), and Illumina, Inc. (NASDAQ:ILMN). 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
TAK 18 790266 -4
USB 48 6299135 -3
AMAT 58 2461809 2
ITW 35 565341 1
AMX 11 97994 0
SO 38 360503 5
ILMN 41 1193190 7
Average 35.6 1681177 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $1681 million. That figure was $2100 million in ECL’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ECL is 77.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately ECL wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ECL were disappointed as the stock returned -0.9% 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.