How Did TE Connectivity Ltd. (TEL) Perform In Comparison to Hedge Fund Favorites in 2019?

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like TE Connectivity Ltd. (NYSE:TEL) and compare its performance against hedge funds’ favorite stocks.

Is TE Connectivity Ltd. (NYSE:TEL) a buy right now? Investors who are in the know are taking a bullish view. The number of bullish hedge fund bets rose by 3 lately. Our calculations also showed that TEL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Blood

David Blood of Generation Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a gander at the new hedge fund action surrounding TE Connectivity Ltd. (NYSE:TEL).

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

Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TEL over the last 17 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Generation Investment Management was the largest shareholder of TE Connectivity Ltd. (NYSE:TEL), with a stake worth $425.8 million reported as of the end of September. Trailing Generation Investment Management was First Pacific Advisors, which amassed a stake valued at $347.9 million. Impax Asset Management, AQR Capital Management, and Rivulet Capital 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 Rivulet Capital allocated the biggest weight to TE Connectivity Ltd. (NYSE:TEL), around 9.2% of its 13F portfolio. First Pacific Advisors is also relatively very bullish on the stock, designating 3.28 percent of its 13F equity portfolio to TEL.

Consequently, specific money managers have jumped into TE Connectivity Ltd. (NYSE:TEL) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in TE Connectivity Ltd. (NYSE:TEL). Arrowstreet Capital had $16.2 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.6 million position during the quarter. The following funds were also among the new TEL investors: Benjamin A. Smith’s Laurion Capital Management, Bruce Kovner’s Caxton Associates, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as TE Connectivity Ltd. (NYSE:TEL) but similarly valued. These stocks are Newmont Goldcorp Corporation (NYSE:NEM), Canadian Pacific Railway Limited (NYSE:CP), Royal Bank of Scotland Group plc (NYSE:RBS), and Barrick Gold Corporation (NYSE:GOLD). All of these stocks’ market caps are closest to TEL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEM 41 868131 0
CP 31 1781495 1
RBS 5 29381 -1
GOLD 42 1443824 3
Average 29.75 1030708 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $1031 million. That figure was $1265 million in TEL’s case. Barrick Gold Corporation (NYSE:GOLD) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. TE Connectivity Ltd. (NYSE:TEL) 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 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. Unfortunately TEL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on TEL were disappointed as the stock returned 29.4% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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