We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds’ top 3 stock picks returned 45.7% last year and beat the S&P 500 ETFs by more than 14 percentage points. That’s a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Entergy Corporation (NYSE:ETR) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that ETR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Phill Gross of Adage Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to review the recent hedge fund action regarding Entergy Corporation (NYSE:ETR).
What have hedge funds been doing with Entergy Corporation (NYSE:ETR)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in ETR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Renaissance Technologies has the number one position in Entergy Corporation (NYSE:ETR), worth close to $563.7 million, accounting for 0.5% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $259.3 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism contain Israel Englander’s Millennium Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Michael Gelband’s ExodusPoint Capital. In terms of the portfolio weights assigned to each position Shelter Harbor Advisors allocated the biggest weight to Entergy Corporation (NYSE:ETR), around 8.89% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, earmarking 5.24 percent of its 13F equity portfolio to ETR.
Because Entergy Corporation (NYSE:ETR) has experienced falling interest from hedge fund managers, it’s easy to see that there was a specific group of hedge funds who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management cut the largest position of the 750 funds monitored by Insider Monkey, totaling an estimated $53.3 million in stock, and Jos Shaver’s Electron Capital Partners was right behind this move, as the fund dumped about $32.3 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Entergy Corporation (NYSE:ETR) but similarly valued. These stocks are Chipotle Mexican Grill, Inc. (NYSE:CMG), Parker-Hannifin Corporation (NYSE:PH), Carnival Corporation & Plc (NYSE:CCL), and Fortive Corporation (NYSE:FTV). This group of stocks’ market caps match ETR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CMG | 38 | 4057541 | 1 |
| PH | 25 | 803965 | -1 |
| CCL | 29 | 589089 | -7 |
| FTV | 34 | 803239 | 6 |
| Average | 31.5 | 1563459 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $1563 million. That figure was $1678 million in ETR’s case. Chipotle Mexican Grill, Inc. (NYSE:CMG) is the most popular stock in this table. On the other hand Parker-Hannifin Corporation (NYSE:PH) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Entergy Corporation (NYSE:ETR) is even less popular than PH. Hedge funds clearly dropped the ball on ETR as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on ETR as the stock returned 44.3% in 2019 and outperformed the market by an even larger margin.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
