Did Hedge Funds Make The Right Call On WEC Energy Group, Inc. (WEC) ?

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 WEC Energy Group, Inc. (NYSE:WEC) and determine whether hedge funds skillfully traded this stock.

Is WEC Energy Group, Inc. (NYSE:WEC) ready to rally soon? Money managers were taking an optimistic view. The number of bullish hedge fund positions increased by 14 recently. Our calculations also showed that WEC 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this tiny lithium stock. With all of this in mind let’s check out the key hedge fund action surrounding WEC Energy Group, Inc. (NYSE:WEC).

How have hedgies been trading WEC Energy Group, Inc. (NYSE:WEC)?

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 93% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WEC 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.

More specifically, Renaissance Technologies was the largest shareholder of WEC Energy Group, Inc. (NYSE:WEC), with a stake worth $85.5 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $71.3 million. Millennium Management, D E Shaw, and Zimmer Partners 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 Blackstart Capital allocated the biggest weight to WEC Energy Group, Inc. (NYSE:WEC), around 4.43% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 1.73 percent of its 13F equity portfolio to WEC.

Now, key hedge funds have jumped into WEC Energy Group, Inc. (NYSE:WEC) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, established the biggest position in WEC Energy Group, Inc. (NYSE:WEC). Zimmer Partners had $12 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also initiated a $6.4 million position during the quarter. The other funds with brand new WEC positions are Ken Griffin’s Citadel Investment Group, Donald Sussman’s Paloma Partners, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as WEC Energy Group, Inc. (NYSE:WEC) but similarly valued. These stocks are The Hershey Company (NYSE:HSY), Chunghwa Telecom Co., Ltd (NYSE:CHT), ICICI Bank Limited (NYSE:IBN), and Constellation Brands, Inc. (NYSE:STZ). This group of stocks’ market caps are closest to WEC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $741 million. That figure was $267 million in WEC’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 6 bullish hedge fund positions. WEC Energy Group, Inc. (NYSE:WEC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately WEC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WEC were disappointed as the stock returned 0.2% during the same time period 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 many of these stocks already outperformed the market so far this year.

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