Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to WEC Energy Group, Inc. (NYSE:WEC) changed recently.
Is WEC Energy Group, Inc. (NYSE:WEC) ready to rally soon? The smart money is becoming hopeful. The number of long hedge fund positions went up by 4 recently. Our calculations also showed that wec isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let’s review the recent hedge fund action regarding WEC Energy Group, Inc. (NYSE:WEC).
What does the smart money think about WEC Energy Group, Inc. (NYSE:WEC)?
At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2018. On the other hand, there were a total of 10 hedge funds with a bullish position in WEC at the beginning of this year. So, let’s check 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 $258.6 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $53 million. Citadel Investment Group, Millennium Management, and Carlson Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, initiated the biggest position in WEC Energy Group, Inc. (NYSE:WEC). Citadel Investment Group had $10.2 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also initiated a $7.2 million position during the quarter. The following funds were also among the new WEC investors: Matthew Hulsizer’s PEAK6 Capital Management, George Zweig, Shane Haas and Ravi Chander’s Signition LP, and Ian Simm’s Impax 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 Waste Connections, Inc. (NYSE:WCN), Hormel Foods Corporation (NYSE:HRL), Ameriprise Financial, Inc. (NYSE:AMP), and KeyCorp (NYSE:KEY). All of these stocks’ market caps resemble WEC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WCN | 30 | 1002797 | -4 |
| HRL | 12 | 66675 | -1 |
| AMP | 33 | 1293396 | 3 |
| KEY | 41 | 802842 | 5 |
| Average | 29 | 791428 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $791 million. That figure was $358 million in WEC’s case. KeyCorp (NYSE:KEY) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 12 bullish hedge fund positions. WEC Energy Group, Inc. (NYSE:WEC) 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. In this regard KEY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
