Were Hedge Funds Right About Dumping EnCana Corporation (ECA)?

We at Insider Monkey have gone over 730 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of June 28th. In this article, we look at what those funds think of EnCana Corporation (NYSE:ECA) based on that data.

EnCana Corporation (NYSE:ECA) was in 32 hedge funds’ portfolios at the end of the second quarter of 2019. ECA has experienced a decrease in support from the world’s most elite money managers in recent months. There were 44 hedge funds in our database with ECA holdings at the end of the previous quarter. Our calculations also showed that ECA isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.


Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the new hedge fund action regarding EnCana Corporation (NYSE:ECA).

How are hedge funds trading EnCana Corporation (NYSE:ECA)?

At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in ECA over the last 16 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.

Andy Redleaf Andrew Redleaf Whitebox Advisors

The largest stake in EnCana Corporation (NYSE:ECA) was held by Point72 Asset Management, which reported holding $147.6 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $86.8 million position. Other investors bullish on the company included Renaissance Technologies, Whitebox Advisors, and Adage Capital Management.

Due to the fact that EnCana Corporation (NYSE:ECA) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedgies that slashed their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management said goodbye to the largest position of all the hedgies followed by Insider Monkey, totaling an estimated $44.1 million in stock, and Anand Parekh’s Alyeska Investment Group was right behind this move, as the fund dumped about $32.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 12 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as EnCana Corporation (NYSE:ECA) but similarly valued. We will take a look at TIM Participacoes SA (NYSE:TSU), Medical Properties Trust, Inc. (NYSE:MPW), YPF Sociedad Anonima (NYSE:YPF), and Axalta Coating Systems Ltd (NYSE:AXTA). All of these stocks’ market caps are similar to ECA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSU 12 306449 -4
MPW 13 169784 0
YPF 15 70155 -6
AXTA 41 2287075 -2
Average 20.25 708366 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $708 million. That figure was $465 million in ECA’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 12 bullish hedge fund positions. EnCana Corporation (NYSE:ECA) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ECA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ECA were disappointed as the stock returned -10% during the third quarter and underperformed 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.

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