Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves.
Eversource Energy (NYSE:ES) was in 21 hedge funds’ portfolios at the end of the second quarter of 2019. ES investors should pay attention to an increase in hedge fund sentiment of late. There were 16 hedge funds in our database with ES holdings at the end of the previous quarter. Our calculations also showed that ES isn’t among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jonathan Barrett of Luminus Management
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a gander at the fresh hedge fund action surrounding Eversource Energy (NYSE:ES).
How are hedge funds trading Eversource Energy (NYSE:ES)?
Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in ES a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the biggest position in Eversource Energy (NYSE:ES). Zimmer Partners has a $325 million position in the stock, comprising 3.4% of its 13F portfolio. On Zimmer Partners’s heels is Renaissance Technologies holding a $180.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions contain Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management.
Now, specific money managers have been driving this bullishness. Luminus Management, managed by Jonathan Barrett and Paul Segal, initiated the largest position in Eversource Energy (NYSE:ES). Luminus Management had $29.6 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson’s Adage Capital Management also made a $29.2 million investment in the stock during the quarter. The other funds with brand new ES positions are Peter J. Hark’s Shelter Harbor Advisors, Steve Pattyn’s Yaupon Capital, and Jeffrey Talpins’s Element Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Eversource Energy (NYSE:ES). We will take a look at Verisk Analytics, Inc. (NASDAQ:VRSK), Synchrony Financial (NYSE:SYF), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and Ball Corporation (NYSE:BLL). All of these stocks’ market caps are closest to ES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VRSK | 30 | 694067 | 10 |
| SYF | 46 | 2515446 | 1 |
| FMS | 9 | 9059 | 2 |
| BLL | 27 | 668641 | 0 |
| Average | 28 | 971803 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $972 million. That figure was $780 million in ES’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Eversource Energy (NYSE:ES) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ES as the stock returned 13.5% during the same time frame and outperformed the market by an even larger margin.
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.
