Hedge Funds Are Piling Into CMS Energy Corporation (CMS)

Is CMS Energy Corporation (NYSE:CMS) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is CMS Energy Corporation (NYSE:CMS) the right investment to pursue these days? Investors who are in the know were getting more bullish. The number of bullish hedge fund bets moved up by 3 lately. CMS Energy Corporation (NYSE:CMS) was in 31 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CMS isn’t among the 30 most popular stocks among hedge funds (click 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 S&P 500 ETFs by 79 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.

Stuart Zimmer of Zimmer Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a gander at the latest hedge fund action surrounding CMS Energy Corporation (NYSE:CMS).

Do Hedge Funds Think CMS Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CMS over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the biggest position in CMS Energy Corporation (NYSE:CMS). Zimmer Partners has a $144.8 million position in the stock, comprising 1.9% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $88.7 million position; 0.1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors with similar optimism consist of Steve Cohen’s Point72 Asset Management, Michael Gelband’s ExodusPoint Capital and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Coann Capital allocated the biggest weight to CMS Energy Corporation (NYSE:CMS), around 5.33% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, setting aside 1.95 percent of its 13F equity portfolio to CMS.

Consequently, specific money managers were leading the bulls’ herd. Renaissance Technologies, initiated the most valuable position in CMS Energy Corporation (NYSE:CMS). Renaissance Technologies had $88.7 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $35.3 million investment in the stock during the quarter. The following funds were also among the new CMS investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Jinghua Yan’s TwinBeech Capital.

Let’s go over hedge fund activity in other stocks similar to CMS Energy Corporation (NYSE:CMS). These stocks are Hologic, Inc. (NASDAQ:HOLX), Monolithic Power Systems, Inc. (NASDAQ:MPWR), Celanese Corporation (NYSE:CE), Diamondback Energy Inc (NASDAQ:FANG), United Airlines Holdings Inc (NASDAQ:UAL), Rollins, Inc. (NYSE:ROL), and Zai Lab Limited (NASDAQ:ZLAB). All of these stocks’ market caps match CMS’s market cap.

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As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $723 million. That figure was $694 million in CMS’s case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Rollins, Inc. (NYSE:ROL) is the least popular one with only 30 bullish hedge fund positions. CMS Energy Corporation (NYSE:CMS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CMS is 42.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on CMS as the stock returned 2.8% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.