Did Hedge Funds Make The Right Call On Consolidated Edison, Inc. (ED) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtConsolidated Edison, Inc. (NYSE:ED) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Consolidated Edison, Inc. (NYSE:ED) going to take off soon? Prominent investors were in a bearish mood. The number of long hedge fund positions retreated by 1 in recent months. Our calculations also showed that ED isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to take a look at the key hedge fund action regarding Consolidated Edison, Inc. (NYSE:ED).

What have hedge funds been doing with Consolidated Edison, Inc. (NYSE:ED)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in ED a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the largest position in Consolidated Edison, Inc. (NYSE:ED), worth close to $372.4 million, corresponding to 0.4% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $233.6 million position; 0.4% of its 13F portfolio is allocated to the company. Some other peers that are bullish encompass Ken Griffin’s Citadel Investment Group, D. E. Shaw’s D E Shaw and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Centenus Global Management allocated the biggest weight to Consolidated Edison, Inc. (NYSE:ED), around 4.85% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, dishing out 0.93 percent of its 13F equity portfolio to ED.

Judging by the fact that Consolidated Edison, Inc. (NYSE:ED) has experienced a decline in interest from the smart money, logic holds that there exists a select few hedge funds who sold off their full holdings by the end of the first quarter. Interestingly, Clint Carlson’s Carlson Capital dumped the biggest stake of all the hedgies monitored by Insider Monkey, comprising close to $43.1 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund cut about $34.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Consolidated Edison, Inc. (NYSE:ED). We will take a look at Eversource Energy (NYSE:ES), Canadian Imperial Bank of Commerce (NYSE:CM), Brown-Forman Corporation (NYSE:BF), and Cognizant Technology Solutions Corp (NASDAQ:CTSH). This group of stocks’ market valuations are closest to ED’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $828 million. That figure was $845 million in ED’s case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 10 bullish hedge fund positions. Consolidated Edison, Inc. (NYSE:ED) is not the least popular stock in this group but hedge fund interest is still below average. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately ED wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ED investors were disappointed as the stock returned -6.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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