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 (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Evergy, Inc. (NYSE:EVRG).
Evergy, Inc. (NYSE:EVRG) has seen a decrease in enthusiasm from smart money recently. Our calculations also showed that EVRG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 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.
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. With all of this in mind we’re going to go over the fresh hedge fund action encompassing Evergy, Inc. (NYSE:EVRG).
What have hedge funds been doing with Evergy, Inc. (NYSE:EVRG)?
At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the third quarter of 2019. By comparison, 25 hedge funds held shares or bullish call options in EVRG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Evergy, Inc. (NYSE:EVRG) was held by Renaissance Technologies, which reported holding $389.7 million worth of stock at the end of September. It was followed by Zimmer Partners with a $147.7 million position. Other investors bullish on the company included Millennium Management, Adage Capital Management, and GLG Partners. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Evergy, Inc. (NYSE:EVRG), around 2.04% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, designating 1.99 percent of its 13F equity portfolio to EVRG.
Because Evergy, Inc. (NYSE:EVRG) has witnessed falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies that slashed their full holdings by the end of the third quarter. Interestingly, Minhua Zhang’s Weld Capital Management dumped the largest position of all the hedgies watched by Insider Monkey, totaling close to $3.5 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also dumped its stock, about $2.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Evergy, Inc. (NYSE:EVRG) but similarly valued. These stocks are Cardinal Health, Inc. (NYSE:CAH), Agnico Eagle Mines Limited (NYSE:AEM), Brookfield Infrastructure Partners L.P. (NYSE:BIP), and RingCentral Inc (NYSE:RNG). This group of stocks’ market valuations resemble EVRG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CAH | 34 | 667856 | 6 |
| AEM | 34 | 413114 | 0 |
| BIP | 11 | 59005 | 3 |
| RNG | 62 | 2456273 | 10 |
| Average | 35.25 | 899062 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.25 hedge funds with bullish positions and the average amount invested in these stocks was $899 million. That figure was $942 million in EVRG’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Brookfield Infrastructure Partners L.P. (NYSE:BIP) is the least popular one with only 11 bullish hedge fund positions. Evergy, Inc. (NYSE:EVRG) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on EVRG, though not to the same extent, as the stock returned -23.3% during the same time period and outperformed the market.
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.
