Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
NiSource Inc. (NYSE:NI) was in 16 hedge funds’ portfolios at the end of the fourth quarter of 2018. NI has seen an increase in hedge fund sentiment recently. There were 13 hedge funds in our database with NI holdings at the end of the previous quarter. Our calculations also showed that NI 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’ 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 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 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.
Let’s check out the key hedge fund action encompassing NiSource Inc. (NYSE:NI).
How have hedgies been trading NiSource Inc. (NYSE:NI)?
Heading into the first quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in NI over the last 14 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, Zimmer Partners was the largest shareholder of NiSource Inc. (NYSE:NI), with a stake worth $366.1 million reported as of the end of September. Trailing Zimmer Partners was Millennium Management, which amassed a stake valued at $139.7 million. Blackstart Capital, Citadel Investment Group, and Carlson Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have been driving this bullishness. Carlson Capital, managed by Clint Carlson, initiated the biggest position in NiSource Inc. (NYSE:NI). Carlson Capital had $21 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $21 million investment in the stock during the quarter. The other funds with new positions in the stock are Jonathan Barrett and Paul Segal’s Luminus Management, Claes Fornell’s CSat Investment Advisory, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as NiSource Inc. (NYSE:NI) but similarly valued. We will take a look at AEGON N.V. (NYSE:AEG), Ally Financial Inc (NYSE:ALLY), Pearson PLC (NYSE:PSO), and Norwegian Cruise Line Holdings Ltd (NYSE:NCLH). This group of stocks’ market values match NI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEG | 11 | 36362 | 4 |
| ALLY | 36 | 1860353 | -4 |
| PSO | 5 | 16332 | 2 |
| NCLH | 40 | 805725 | -1 |
| Average | 23 | 679693 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $680 million. That figure was $635 million in NI’s case. Norwegian Cruise Line Holdings Ltd (NYSE:NCLH) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 5 bullish hedge fund positions. NiSource Inc. (NYSE:NI) 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 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Unfortunately NI wasn’t in this group. Hedge funds that bet on NI were disappointed as the stock returned 10.8% and underperformed the market. If you are interested in investing in large cap stocks, you should check out the top 15 hedge fund stocks as 13 of these outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
