While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Ecolab Inc. (NYSE:ECL).
Is ECL stock a buy or sell? Ecolab Inc. (NYSE:ECL) was in 45 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 52. ECL has experienced a decrease in support from the world’s most elite money managers in recent months. There were 52 hedge funds in our database with ECL positions at the end of the third quarter. Our calculations also showed that ECL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here).
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). With all of this in mind let’s take a look at the key hedge fund action surrounding Ecolab Inc. (NYSE:ECL).
Do Hedge Funds Think ECL Is A Good Stock To Buy Now?
At fourth quarter’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2020. On the other hand, there were a total of 44 hedge funds with a bullish position in ECL a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the biggest position in Ecolab Inc. (NYSE:ECL). Bill & Melinda Gates Foundation Trust has a $944.7 million position in the stock, comprising 4.2% of its 13F portfolio. The second most bullish fund manager is William von Mueffling of Cantillon Capital Management, with a $473.9 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Other professional money managers that are bullish consist of Ian Simm’s Impax Asset Management, Cliff Asness’s AQR Capital Management and Tom Gayner’s Markel Gayner Asset Management. In terms of the portfolio weights assigned to each position Columbus Point allocated the biggest weight to Ecolab Inc. (NYSE:ECL), around 5.4% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, designating 4.23 percent of its 13F equity portfolio to ECL.
Because Ecolab Inc. (NYSE:ECL) has witnessed a decline in interest from the smart money, we can see that there were a few funds who were dropping their positions entirely in the fourth quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $32.2 million in stock. Josh Donfeld and David Rogers’s fund, Castle Hook Partners, also cut its stock, about $24.2 million worth. These transactions are interesting, as total hedge fund interest was cut by 7 funds in the fourth quarter.
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 Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), Dominion Energy Inc. (NYSE:D), Air Products & Chemicals, Inc. (NYSE:APD), Norfolk Southern Corp. (NYSE:NSC), Spotify Technology S.A. (NYSE:SPOT), General Motors Company (NYSE:GM), and Marsh & McLennan Companies, Inc. (NYSE:MMC). This group of stocks’ market caps are similar to ECL’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 50.7 hedge funds with bullish positions and the average amount invested in these stocks was $2493 million. That figure was $2450 million in ECL’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Marsh & McLennan Companies, Inc. (NYSE:MMC) is the least popular one with only 43 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 overall hedge fund sentiment score for ECL is 27.7. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and surpassed the market again by 0.8 percentage points. Unfortunately ECL wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); ECL investors were disappointed as the stock returned -3.8% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow Ecolab Inc. (NYSE:ECL)
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Disclosure: None. This article was originally published at Insider Monkey.