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Were Hedge Funds Right About Flocking Into General Electric Company (GE)?

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to General Electric Company (NYSE:GE) changed recently.

Is General Electric Company (NYSE:GE) going to take off soon? Money managers are taking a bullish view. The number of bullish hedge fund positions improved by 13 in recent months. Our calculations also showed that GE isn’t among the 30 most popular stocks among hedge funds.

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 32 percentage points since May 2014 through March 12, 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.

TRIAN PARTNERS

Let’s take a gander at the latest hedge fund action surrounding General Electric Company (NYSE:GE).

Hedge fund activity in General Electric Company (NYSE:GE)

At the end of the fourth quarter, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 28% from the previous quarter. By comparison, 47 hedge funds held shares or bullish call options in GE 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.

GE_mar2019

Among these funds, Trian Partners held the most valuable stake in General Electric Company (NYSE:GE), which was worth $536.5 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $479.7 million worth of shares. Moreover, Southeastern Asset Management, Adage Capital Management, and Eagle Capital Management were also bullish on General Electric Company (NYSE:GE), allocating a large percentage of their portfolios to this stock.

Consequently, specific money managers have been driving this bullishness. Eagle Capital Management, managed by Boykin Curry, created the most valuable position in General Electric Company (NYSE:GE). Eagle Capital Management had $190.9 million invested in the company at the end of the quarter. Kerr Neilson’s Platinum Asset Management also made a $77.3 million investment in the stock during the quarter. The following funds were also among the new GE investors: David Iben’s Kopernik Global Investors, David Greenspan’s Slate Path Capital, and Jeffrey Altman’s Owl Creek Asset Management.

Let’s also examine hedge fund activity in other stocks similar to General Electric Company (NYSE:GE). We will take a look at Charter Communications, Inc. (NASDAQ:CHTR), Walgreens Boots Alliance Inc (NASDAQ:WBA), Mitsubishi UFJ Financial Group Inc (NYSE:MUFG), and Enbridge Inc (NYSE:ENB). All of these stocks’ market caps resemble GE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CHTR 64 6572480 -3
WBA 39 1089022 5
MUFG 9 72908 9
ENB 18 174780 -3
Average 32.5 1977298 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $1977 million. That figure was $2955 million in GE’s case. Charter Communications, Inc. (NASDAQ:CHTR) is the most popular stock in this table. On the other hand Mitsubishi UFJ Financial Group Inc (NYSE:MUFG) is the least popular one with only 9 bullish hedge fund positions. General Electric Company (NYSE:GE) is not the most popular stock in this group but hedge fund interest is still above average and on the rise. It seems like hedge funds turned bullish on GE at the right time. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on GE as the stock returned 37% and outperformed the market by a huge margin.

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

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