Hedge Fund Darlings vs. Exelon Corporation (EXC) In 2019

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds. What do these smart investors think about Exelon Corporation (NYSE:EXC)?

Exelon Corporation (NYSE:EXC) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. EXC was in 34 hedge funds’ portfolios at the end of September. There were 32 hedge funds in our database with EXC positions at the end of the previous quarter. Our calculations also showed that EXC 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.

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Keeping this in mind we’re going to go over the latest hedge fund action encompassing Exelon Corporation (NYSE:EXC).

What have hedge funds been doing with Exelon Corporation (NYSE:EXC)?

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in EXC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Exelon Corporation (NYSE:EXC), worth close to $870.8 million, comprising 1% of its total 13F portfolio. Sitting at the No. 2 spot is Noam Gottesman of GLG Partners, with a $277.1 million position; 1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise Ken Griffin’s Citadel Investment Group, Phill Gross and Robert Atchinson’s Adage Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to Exelon Corporation (NYSE:EXC), around 8.52% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, earmarking 8.26 percent of its 13F equity portfolio to EXC.

As aggregate interest increased, key hedge funds were breaking ground themselves. Castle Hook Partners, managed by Josh Donfeld and David Rogers, established the most outsized position in Exelon Corporation (NYSE:EXC). Castle Hook Partners had $37.3 million invested in the company at the end of the quarter. Peter J. Hark’s Shelter Harbor Advisors also initiated a $9.7 million position during the quarter. The other funds with brand new EXC positions are Steve Pattyn’s Yaupon Capital, Zilvinas Mecelis’s Covalis Capital, and Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital.

Let’s also examine hedge fund activity in other stocks similar to Exelon Corporation (NYSE:EXC). These stocks are Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Kinder Morgan Inc (NYSE:KMI), L3Harris Technologies, Inc. (NASDAQ:LHX), and American Electric Power Company, Inc. (NYSE:AEP). This group of stocks’ market caps are similar to EXC’s market cap.

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As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1569 million. That figure was $2029 million in EXC’s case. L3Harris Technologies, Inc. (NASDAQ:LHX) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. Exelon Corporation (NYSE:EXC) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately EXC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EXC were disappointed as the stock returned 3.4% in 2019 (through December 23rd) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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.