Did Hedge Funds Make The Right Call On NiSource Inc. (NI) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards NiSource Inc. (NYSE:NI) and determine whether hedge funds skillfully traded this stock.

Is NiSource Inc. (NYSE:NI) a buy right now? Hedge funds were selling. The number of bullish hedge fund bets dropped by 1 in recent months. Our calculations also showed that NI 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 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 S&P 500 ETFs by 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 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.

Dmitry Balyasny of Balyasny Asset Management

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 we’re going to review the latest hedge fund action encompassing NiSource Inc. (NYSE:NI).

How are hedge funds trading NiSource Inc. (NYSE:NI)?

At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NI over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the biggest position in NiSource Inc. (NYSE:NI). Citadel Investment Group has a $195 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Zimmer Partners, led by Stuart J. Zimmer, holding a $165.1 million position; 3.7% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish contain D. E. Shaw’s D E Shaw, Jim Simons (founder)’s Renaissance Technologies and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to NiSource Inc. (NYSE:NI), around 3.66% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, setting aside 1.86 percent of its 13F equity portfolio to NI.

Judging by the fact that NiSource Inc. (NYSE:NI) has faced a decline in interest from the smart money, logic holds that there was a specific group of hedgies who sold off their positions entirely in the first quarter. At the top of the heap, Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital dumped the largest stake of all the hedgies followed by Insider Monkey, comprising an estimated $15 million in stock. Richard SchimeláandáLawrence Sapanski’s fund, Cinctive Capital Management, also dumped its stock, about $6.4 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to NiSource Inc. (NYSE:NI). These stocks are DaVita Inc (NYSE:DVA), Masimo Corporation (NASDAQ:MASI), BeiGene, Ltd. (NASDAQ:BGNE), and Qiagen NV (NASDAQ:QGEN). This group of stocks’ market values resemble NI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $1583 million. That figure was $642 million in NI’s case. DaVita Inc (NYSE:DVA) is the most popular stock in this table. On the other hand BeiGene, Ltd. (NASDAQ:BGNE) is the least popular one with only 11 bullish hedge fund positions. NiSource Inc. (NYSE:NI) 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 NI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NI investors were disappointed as the stock returned -8.2% 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.