Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.3% in 2019 and outperformed the broader market benchmark by 10.1 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is CMS Energy Corporation (NYSE:CMS) a marvelous investment now? Prominent investors are in a bullish mood. The number of long hedge fund positions moved up by 4 lately. Our calculations also showed that CMS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s take a gander at the new hedge fund action regarding CMS Energy Corporation (NYSE:CMS).
Hedge fund activity in CMS Energy Corporation (NYSE:CMS)
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CMS over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, GQG Partners was the largest shareholder of CMS Energy Corporation (NYSE:CMS), with a stake worth $204.4 million reported as of the end of September. Trailing GQG Partners was Renaissance Technologies, which amassed a stake valued at $150.9 million. Millennium Management, Citadel Investment Group, and Luminus Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Shelter Harbor Advisors allocated the biggest weight to CMS Energy Corporation (NYSE:CMS), around 6.46% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, designating 2.3 percent of its 13F equity portfolio to CMS.
Now, key money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in CMS Energy Corporation (NYSE:CMS). Balyasny Asset Management had $16.5 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also initiated a $5.8 million position during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Matthew Hulsizer’s PEAK6 Capital Management, and Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CMS Energy Corporation (NYSE:CMS) but similarly valued. These stocks are Lennar Corporation (NYSE:LEN), KeyCorp (NYSE:KEY), Centene Corp (NYSE:CNC), and Splunk Inc (NASDAQ:SPLK). This group of stocks’ market values are similar to CMS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEN | 57 | 1988724 | 4 |
| KEY | 28 | 671066 | -3 |
| CNC | 55 | 2034586 | -10 |
| SPLK | 32 | 168599 | 7 |
| Average | 43 | 1215744 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1216 million. That figure was $943 million in CMS’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand KeyCorp (NYSE:KEY) is the least popular one with only 28 bullish hedge fund positions. Compared to these stocks CMS Energy Corporation (NYSE:CMS) is even less popular than KEY. Hedge funds dodged a bullet by taking a bearish stance towards CMS. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CMS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CMS investors were disappointed as the stock returned 30% in 2019 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 65 percent of these stocks outperformed the market in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
