Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Entergy Corporation (NYSE:ETR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Entergy Corporation (NYSE:ETR) has experienced an increase in support from the world’s most elite money managers recently. ETR was in 31 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with ETR positions at the end of the previous quarter. Our calculations also showed that ETR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 41 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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a look at the recent hedge fund action surrounding Entergy Corporation (NYSE:ETR).
How have hedgies been trading Entergy Corporation (NYSE:ETR)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ETR over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Entergy Corporation (NYSE:ETR), with a stake worth $586.9 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $162.8 million. Citadel Investment Group, Adage Capital Management, and ExodusPoint Capital 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 Shelter Harbor Advisors allocated the biggest weight to Entergy Corporation (NYSE:ETR), around 7.8% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, earmarking 2.05 percent of its 13F equity portfolio to ETR.
Consequently, specific money managers have jumped into Entergy Corporation (NYSE:ETR) headfirst. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, initiated the most valuable position in Entergy Corporation (NYSE:ETR). Cinctive Capital Management had $6.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $2.6 million position during the quarter. The other funds with brand new ETR positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, D. E. Shaw’s D E Shaw, and Jinghua Yan’s TwinBeech Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Entergy Corporation (NYSE:ETR) but similarly valued. We will take a look at Kellogg Company (NYSE:K), Rockwell Automation Inc. (NYSE:ROK), Splunk Inc (NASDAQ:SPLK), and TELUS Corporation (NYSE:TU). This group of stocks’ market valuations are closest to ETR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| K | 30 | 569797 | 1 |
| ROK | 39 | 614212 | 10 |
| SPLK | 38 | 538860 | 2 |
| TU | 13 | 254674 | -7 |
| Average | 30 | 494386 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $494 million. That figure was $1402 million in ETR’s case. Rockwell Automation Inc. (NYSE:ROK) is the most popular stock in this table. On the other hand TELUS Corporation (NYSE:TU) is the least popular one with only 13 bullish hedge fund positions. Entergy Corporation (NYSE:ETR) is not the most popular stock in this group but hedge fund interest is still above average. 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. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on ETR as the stock returned -6.2% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
