Were Hedge Funds Right About Flocking Into Icahn Enterprises LP (IEP) ?

A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Icahn Enterprises LP (NASDAQ:IEP) during the quarter.

Icahn Enterprises LP (NASDAQ:IEP) was in 6 hedge funds’ portfolios at the end of the fourth quarter of 2018. IEP has experienced an increase in activity from the world’s largest hedge funds of late. There were 4 hedge funds in our database with IEP holdings at the end of the previous quarter. Our calculations also showed that IEP 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.

Most Popular Stocks Among Hedge Funds

We’re going to go over the key hedge fund action regarding Icahn Enterprises LP (NASDAQ:IEP).

What does the smart money think about Icahn Enterprises LP (NASDAQ:IEP)?

At Q4’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the second quarter of 2018. On the other hand, there were a total of 5 hedge funds with a bullish position in IEP a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).


More specifically, Icahn Capital LP was the largest shareholder of Icahn Enterprises LP (NASDAQ:IEP), with a stake worth $10014.2 million reported as of the end of September. Trailing Icahn Capital LP was Horizon Asset Management, which amassed a stake valued at $116.7 million. Renaissance Technologies, Citadel Investment Group, and McKinley Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, key hedge funds have jumped into Icahn Enterprises LP (NASDAQ:IEP) headfirst. Renaissance Technologies, managed by Jim Simons, created the most valuable position in Icahn Enterprises LP (NASDAQ:IEP). Renaissance Technologies had $3.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.3 million position during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Icahn Enterprises LP (NASDAQ:IEP) but similarly valued. We will take a look at DexCom, Inc. (NASDAQ:DXCM), Marvell Technology Group Ltd. (NASDAQ:MRVL), The J.M. Smucker Company (NYSE:SJM), and Devon Energy Corp (NYSE:DVN). This group of stocks’ market values match IEP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DXCM 31 738361 1
MRVL 35 1328538 4
SJM 20 272592 -6
DVN 42 1168927 -5
Average 32 877105 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $877 million. That figure was $10138 million in IEP’s case. Devon Energy Corp (NYSE:DVN) is the most popular stock in this table. On the other hand The J.M. Smucker Company (NYSE:SJM) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Icahn Enterprises LP (NASDAQ:IEP) is even less popular than SJM. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. 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 IEP as the stock returned 30.6% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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