Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Things completely reversed during the first quarter. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards NextEra Energy, Inc. (NYSE:NEE) to find out whether it was one of their high conviction long-term ideas.
NextEra Energy, Inc. (NYSE:NEE) was in 36 hedge funds’ portfolios at the end of March. NEE has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 37 hedge funds in our database with NEE positions at the end of the previous quarter. Our calculations also showed that NEE isn’t among the 30 most popular stocks among hedge funds.
If you’d ask most shareholders, hedge funds are assumed to be worthless, outdated financial vehicles of years past. While there are over 8000 funds in operation at the moment, Our experts hone in on the bigwigs of this club, around 750 funds. These money managers direct the lion’s share of the hedge fund industry’s total capital, and by shadowing their top stock picks, Insider Monkey has revealed several investment strategies that have historically outperformed the market. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points a year since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Let’s check out the recent hedge fund action regarding NextEra Energy, Inc. (NYSE:NEE).
How have hedgies been trading NextEra Energy, Inc. (NYSE:NEE)?
Heading into the second quarter of 2019, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NEE over the last 15 quarters. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in NextEra Energy, Inc. (NYSE:NEE) was held by AQR Capital Management, which reported holding $251.9 million worth of stock at the end of March. It was followed by Adage Capital Management with a $115 million position. Other investors bullish on the company included OZ Management, Polaris Capital Management, and GLG Partners.
Because NextEra Energy, Inc. (NYSE:NEE) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their positions entirely heading into Q3. At the top of the heap, Daniel Lascano’s Lomas Capital Management said goodbye to the largest position of all the hedgies watched by Insider Monkey, worth an estimated $42.9 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $16.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 1 funds heading into Q3.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as NextEra Energy, Inc. (NYSE:NEE) but similarly valued. We will take a look at American Express Company (NYSE:AXP), Lowe’s Companies, Inc. (NYSE:LOW), General Electric Company (NYSE:GE), and American Tower Corporation (NYSE:AMT). This group of stocks’ market valuations match NEE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXP | 57 | 19790830 | 7 |
| LOW | 56 | 5256913 | 3 |
| GE | 54 | 3675745 | -5 |
| AMT | 39 | 3021510 | -2 |
| Average | 51.5 | 7936250 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 51.5 hedge funds with bullish positions and the average amount invested in these stocks was $7936 million. That figure was $858 million in NEE’s case. American Express Company (NYSE:AXP) is the most popular stock in this table. On the other hand American Tower Corporation (NYSE:AMT) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks NextEra Energy, Inc. (NYSE:NEE) is even less popular than AMT. Hedge funds clearly dropped the ball on NEE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on NEE as the stock returned 2.9% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
