It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% 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 isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like El Paso Electric Company (NYSE:EE).
El Paso Electric Company (NYSE:EE) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that EE 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 32 percentage points since May 2014 through March 12, 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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the key hedge fund action regarding El Paso Electric Company (NYSE:EE).
Hedge fund activity in El Paso Electric Company (NYSE:EE)
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 53% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in EE a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, GAMCO Investors was the largest shareholder of El Paso Electric Company (NYSE:EE), with a stake worth $70.9 million reported as of the end of September. Trailing GAMCO Investors was Renaissance Technologies, which amassed a stake valued at $62 million. Electron Capital Partners, Millennium Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Now, key hedge funds were breaking ground themselves. Blackstart Capital, managed by Brian Olson, Baehyun Sung, and Jamie Waters, initiated the largest position in El Paso Electric Company (NYSE:EE). Blackstart Capital had $10.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $7.5 million position during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Steve Pattyn’s Yaupon Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Let’s go over hedge fund activity in other stocks similar to El Paso Electric Company (NYSE:EE). We will take a look at Agree Realty Corporation (NYSE:ADC), Descartes Systems Group (NASDAQ:DSGX), Xencor Inc (NASDAQ:XNCR), and Terex Corporation (NYSE:TEX). This group of stocks’ market valuations are closest to EE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ADC | 11 | 52478 | -3 |
| DSGX | 12 | 66040 | 3 |
| XNCR | 13 | 211098 | -2 |
| TEX | 13 | 258200 | -8 |
| Average | 12.25 | 146954 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $147 million. That figure was $274 million in EE’s case. Xencor Inc (NASDAQ:XNCR) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks El Paso Electric Company (NYSE:EE) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on EE, though not to the same extent, as the stock returned 17.5% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
