Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 12.1% in the first 5 months of this year through May 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Avangrid, Inc. (NYSE:AGR).
Avangrid, Inc. (NYSE:AGR) has experienced an increase in hedge fund interest recently. Our calculations also showed that AGR isn’t among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Noam Gottesman, GLG Partners
Let’s take a glance at the fresh hedge fund action regarding Avangrid, Inc. (NYSE:AGR).
How have hedgies been trading Avangrid, Inc. (NYSE:AGR)?
At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the fourth quarter of 2018. Below, you can check out the change in hedge fund sentiment towards AGR over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of Avangrid, Inc. (NYSE:AGR), with a stake worth $106.9 million reported as of the end of March. Trailing Pzena Investment Management was Electron Capital Partners, which amassed a stake valued at $67.4 million. Renaissance Technologies, Lansdowne Partners, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
As aggregate interest increased, some big names have been driving this bullishness. Lansdowne Partners, managed by Alex Snow, initiated the largest position in Avangrid, Inc. (NYSE:AGR). Lansdowne Partners had $32.1 million invested in the company at the end of the quarter. Zilvinas Mecelis’s Covalis Capital also made a $19.1 million investment in the stock during the quarter. The other funds with brand new AGR positions are Bernard Lambilliotte’s Ecofin Ltd, Steve Cohen’s Point72 Asset Management, and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.
Let’s go over hedge fund activity in other stocks similar to Avangrid, Inc. (NYSE:AGR). These stocks are D.R. Horton, Inc. (NYSE:DHI), CenterPoint Energy, Inc. (NYSE:CNP), ANSYS, Inc. (NASDAQ:ANSS), and Brookfield Property REIT Inc. (NASDAQ:BPR). All of these stocks’ market caps match AGR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DHI | 46 | 2449791 | -1 |
| CNP | 34 | 939440 | 1 |
| ANSS | 28 | 837871 | -1 |
| BPR | 15 | 85268 | 1 |
| Average | 30.75 | 1078093 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $1078 million. That figure was $391 million in AGR’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Brookfield Property REIT Inc. (NASDAQ:BPR) is the least popular one with only 15 bullish hedge fund positions. Avangrid, Inc. (NYSE:AGR) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately AGR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AGR investors were disappointed as the stock returned 2.7% during the same time 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 so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
