Did Hedge Funds Make The Right Call On PPL Corporation (PPL)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of PPL Corporation (NYSE:PPL) based on that data and determine whether they were really smart about the stock.

PPL Corporation (NYSE:PPL) has seen a decrease in hedge fund sentiment in recent months. PPL was in 28 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with PPL positions at the end of the previous quarter. Our calculations also showed that PPL 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.

Frank Brosens of Taconic 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. Now let’s take a glance at the fresh hedge fund action surrounding PPL Corporation (NYSE:PPL).

How have hedgies been trading PPL Corporation (NYSE:PPL)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in PPL a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in PPL Corporation (NYSE:PPL) was held by Renaissance Technologies, which reported holding $91.9 million worth of stock at the end of September. It was followed by Covalis Capital with a $37.5 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and Electron Capital Partners. In terms of the portfolio weights assigned to each position Covalis Capital allocated the biggest weight to PPL Corporation (NYSE:PPL), around 17.25% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, earmarking 7.66 percent of its 13F equity portfolio to PPL.

Since PPL Corporation (NYSE:PPL) has experienced falling interest from the smart money, it’s easy to see that there were a few money managers who were dropping their positions entirely heading into Q4. Intriguingly, Clint Carlson’s Carlson Capital dumped the biggest position of all the hedgies monitored by Insider Monkey, worth close to $36 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also dropped its stock, about $18.3 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as PPL Corporation (NYSE:PPL) but similarly valued. These stocks are Hilton Worldwide Holdings Inc (NYSE:HLT), State Street Corporation (NYSE:STT), Sun Life Financial Inc. (NYSE:SLF), and Franco-Nevada Corporation (NYSE:FNV). This group of stocks’ market caps resemble PPL’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $1159 million. That figure was $312 million in PPL’s case. Hilton Worldwide Holdings Inc (NYSE:HLT) is the most popular stock in this table. On the other hand Sun Life Financial Inc. (NYSE:SLF) is the least popular one with only 16 bullish hedge fund positions. PPL Corporation (NYSE:PPL) 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 PPL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PPL investors were disappointed as the stock returned 6.1% 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.