Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Exelon Corporation (NYSE:EXC) based on those filings.
Exelon Corporation (NYSE:EXC) has seen a decrease in hedge fund interest in recent months. EXC was in 36 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 38 hedge funds in our database with EXC holdings at the end of the previous quarter. Our calculations also showed that EXC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital 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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a glance at the latest hedge fund action encompassing Exelon Corporation (NYSE:EXC).
How have hedgies been trading Exelon Corporation (NYSE:EXC)?
Heading into the first quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in EXC a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Exelon Corporation (NYSE:EXC). AQR Capital Management has a $632.7 million position in the stock, comprising 0.7% of its 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $289.1 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions encompass D. E. Shaw’s D E Shaw, Noam Gottesman’s GLG Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Covalis Capital allocated the biggest weight to Exelon Corporation (NYSE:EXC), around 35.53% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, designating 9.83 percent of its 13F equity portfolio to EXC.
Because Exelon Corporation (NYSE:EXC) has witnessed declining sentiment from the smart money, logic holds that there were a few funds who were dropping their entire stakes last quarter. Interestingly, Stuart J. Zimmer’s Zimmer Partners cut the largest investment of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $41.9 million in stock, and Josh Donfeld and David Rogers’s Castle Hook Partners was right behind this move, as the fund said goodbye to about $37.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Exelon Corporation (NYSE:EXC) but similarly valued. These stocks are Pinduoduo Inc. (NASDAQ:PDD), Koninklijke Philips NV (NYSE:PHG), Baidu, Inc. (NASDAQ:BIDU), and Analog Devices, Inc. (NASDAQ:ADI). This group of stocks’ market valuations are closest to EXC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PDD | 32 | 1682011 | 1 |
| PHG | 9 | 179950 | 1 |
| BIDU | 60 | 2832866 | 12 |
| ADI | 51 | 2513701 | 5 |
| Average | 38 | 1802132 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $1802 million. That figure was $1822 million in EXC’s case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand Koninklijke Philips NV (NYSE:PHG) is the least popular one with only 9 bullish hedge fund positions. Exelon Corporation (NYSE:EXC) is not the least popular stock in this group but hedge fund interest is still below average. 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. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on EXC, though not to the same extent, as the stock returned -12% during the same time period and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
