Did Hedge Funds Make The Right Call On DTE Energy Company (DTE) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards DTE Energy Company (NYSE:DTE) at the end of the first quarter and determine whether the smart money was really smart about this stock.

DTE Energy Company (NYSE:DTE) was in 29 hedge funds’ portfolios at the end of March. DTE has seen a decrease in enthusiasm from smart money in recent months. There were 35 hedge funds in our database with DTE holdings at the end of the previous quarter. Our calculations also showed that DTE 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the fresh hedge fund action encompassing DTE Energy Company (NYSE:DTE).

Hedge fund activity in DTE Energy Company (NYSE:DTE)

At the end of the first quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DTE over the last 18 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.

Among these funds, Citadel Investment Group held the most valuable stake in DTE Energy Company (NYSE:DTE), which was worth $172.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $82 million worth of shares. Two Sigma Advisors, D E Shaw, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Yaupon Capital allocated the biggest weight to DTE Energy Company (NYSE:DTE), around 3.9% of its 13F portfolio. Highbridge Capital Management is also relatively very bullish on the stock, setting aside 3.65 percent of its 13F equity portfolio to DTE.

Because DTE Energy Company (NYSE:DTE) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there was a specific group of money managers who were dropping their entire stakes last quarter. It’s worth mentioning that Stuart J. Zimmer’s Zimmer Partners cut the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $129.9 million in stock. Clint Carlson’s fund, Carlson Capital, also dumped its stock, about $60.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to DTE Energy Company (NYSE:DTE). We will take a look at Delta Air Lines, Inc. (NYSE:DAL), AmerisourceBergen Corporation (NYSE:ABC), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Cintas Corporation (NASDAQ:CTAS). This group of stocks’ market values are closest to DTE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 46 hedge funds with bullish positions and the average amount invested in these stocks was $1684 million. That figure was $517 million in DTE’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand AmerisourceBergen Corporation (NYSE:ABC) is the least popular one with only 41 bullish hedge fund positions. Compared to these stocks DTE Energy Company (NYSE:DTE) is even less popular than ABC. Hedge funds dodged a bullet by taking a bearish stance towards DTE. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 15.5 percentage points. Unfortunately DTE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); DTE investors were disappointed as the stock returned 14.3% 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 so far in 2020.

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