Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in New Jersey Resources Corp (NYSE:NJR)? The smart money sentiment can provide an answer to this question.
Is New Jersey Resources Corp (NYSE:NJR) a first-rate investment now? Money managers are reducing their bets on the stock. The number of long hedge fund positions dropped by 7 recently. Our calculations also showed that njr isn’t among the 30 most popular stocks among hedge funds. NJR was in 11 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with NJR holdings at the end of the previous quarter.
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 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 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.
We’re going to view the fresh hedge fund action encompassing New Jersey Resources Corp (NYSE:NJR).
What does smart money think about New Jersey Resources Corp (NYSE:NJR)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -39% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NJR over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of New Jersey Resources Corp (NYSE:NJR), with a stake worth $53.9 million reported as of the end of March. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $16.9 million. AQR Capital Management, Millennium Management, and Balyasny Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Since New Jersey Resources Corp (NYSE:NJR) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies who were dropping their full holdings by the end of the third quarter. Interestingly, Daniel Arbess’s Perella Weinberg Partners sold off the biggest stake of all the hedgies monitored by Insider Monkey, valued at an estimated $2.6 million in stock, and D. E. Shaw’s D E Shaw was right behind this move, as the fund sold off about $2.2 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 7 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to New Jersey Resources Corp (NYSE:NJR). These stocks are Chegg Inc (NYSE:CHGG), Ingevity Corporation (NYSE:NGVT), Methanex Corporation (NASDAQ:MEOH), and Pluralsight, Inc. (NASDAQ:PS). All of these stocks’ market caps resemble NJR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CHGG | 36 | 511609 | 15 |
| NGVT | 23 | 112069 | 6 |
| MEOH | 22 | 260832 | 1 |
| PS | 30 | 321492 | 15 |
| Average | 27.75 | 301501 | 9.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $96 million in NJR’s case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Methanex Corporation (NASDAQ:MEOH) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks New Jersey Resources Corp (NYSE:NJR) is even less popular than MEOH. Hedge funds dodged a bullet by taking a bearish stance towards NJR. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately NJR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NJR investors were disappointed as the stock returned 2.8% during the same time frame 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 the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
