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Here’s What Hedge Funds Think About Ecolab Inc. (ECL)

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) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 27 hedge funds’ portfolios at the end of the first quarter of 2019. At the end of this article we will also compare ECL to other stocks including Deere & Company (NYSE:DE), Vodafone Group Plc (NASDAQ:VOD), and Norfolk Southern Corp. (NYSE:NSC) to get a better sense of its popularity.

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 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

We’re going to view the fresh hedge fund action regarding Ecolab Inc. (NYSE:ECL).

Hedge fund activity in Ecolab Inc. (NYSE:ECL)

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in ECL a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ECL_jun2019

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Ecolab Inc. (NYSE:ECL), which was worth $770.8 million at the end of the first quarter. On the second spot was Cantillon Capital Management which amassed $410 million worth of shares. Moreover, Impax Asset Management, Eagle Capital Management, and AQR Capital Management were also bullish on Ecolab Inc. (NYSE:ECL), allocating a large percentage of their portfolios to this stock.

Because Ecolab Inc. (NYSE:ECL) has experienced declining sentiment from the smart money, we can see that there is a sect of hedge funds that elected to cut their full holdings heading into Q3. Intriguingly, Will Cook’s Sunriver Management dropped the biggest investment of the 700 funds tracked by Insider Monkey, valued at an estimated $16.2 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund dumped about $5.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Ecolab Inc. (NYSE:ECL). These stocks are Deere & Company (NYSE:DE), Vodafone Group Plc (NASDAQ:VOD), Norfolk Southern Corp. (NYSE:NSC), and Occidental Petroleum Corporation (NYSE:OXY). This group of stocks’ market values resemble ECL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DE 31 1412560 -16
VOD 18 438299 0
NSC 47 1869998 0
OXY 35 880306 3
Average 32.75 1150291 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.75 hedge funds with bullish positions and the average amount invested in these stocks was $1150 million. That figure was $1966 million in ECL’s case. Norfolk Southern Corp. (NYSE:NSC) is the most popular stock in this table. On the other hand Vodafone Group Plc (NASDAQ:VOD) is the least popular one with only 18 bullish hedge fund positions. Ecolab Inc. (NYSE:ECL) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on ECL as the stock returned 3.9% during the same time frame and outperformed the market by an even larger margin.

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

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