Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 12.1% in 2019 (through May 30th). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of 18.7% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like NRG Energy Inc (NYSE:NRG).
Is NRG Energy Inc (NYSE:NRG) worth your attention right now? Investors who are in the know are in a bearish mood. The number of bullish hedge fund bets retreated by 9 recently. Our calculations also showed that nrg isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Let’s analyze the key hedge fund action encompassing NRG Energy Inc (NYSE:NRG).
How are hedge funds trading NRG Energy Inc (NYSE:NRG)?
Heading into the second quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the previous quarter. On the other hand, there were a total of 48 hedge funds with a bullish position in NRG a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Brahman Capital, managed by Mitch Kuflik and Rob Sobel, holds the biggest position in NRG Energy Inc (NYSE:NRG). Brahman Capital has a $270.9 million position in the stock, comprising 19.2% of its 13F portfolio. Sitting at the No. 2 spot is Robert Pitts of Steadfast Capital Management, with a $217.8 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Jim Simons’s Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’s AQR Capital Management.
Seeing as NRG Energy Inc (NYSE:NRG) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few hedgies who sold off their entire stakes by the end of the third quarter. Intriguingly, Richard Barrera’s Roystone Capital Partners said goodbye to the largest position of the 700 funds tracked by Insider Monkey, worth an estimated $63.2 million in stock, and Don Morgan’s Brigade Capital was right behind this move, as the fund dropped about $24 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 9 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to NRG Energy Inc (NYSE:NRG). These stocks are Textron Inc. (NYSE:TXT), Tractor Supply Company (NASDAQ:TSCO), Cna Financial Corporation (NYSE:CNA), and Seattle Genetics, Inc. (NASDAQ:SGEN). This group of stocks’ market values are similar to NRG’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TXT | 24 | 665699 | -4 |
| TSCO | 33 | 579597 | -8 |
| CNA | 14 | 76729 | 1 |
| SGEN | 19 | 4016031 | 3 |
| Average | 22.5 | 1334514 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $1335 million. That figure was $1792 million in NRG’s case. Tractor Supply Company (NASDAQ:TSCO) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks NRG Energy Inc (NYSE:NRG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately NRG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NRG were disappointed as the stock returned -20.5% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
