While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Dominion Resources, Inc. (NYSE:D) and see how the stock performed in comparison to hedge funds’ consensus picks.
Is Dominion Resources, Inc. (NYSE:D) a marvelous stock to buy now? Money managers are in a bullish mood. The number of bullish hedge fund positions went up by 3 in recent months. Our calculations also showed that D 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.
Ken Griffin of Citadel Investment Group
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. 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 already gained 20 percent. Now we’re going to take a glance at the key hedge fund action regarding Dominion Resources, Inc. (NYSE:D).
What have hedge funds been doing with Dominion Resources, Inc. (NYSE:D)?
At the end of the third quarter, a total of 42 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in D 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.
The largest stake in Dominion Resources, Inc. (NYSE:D) was held by Zimmer Partners, which reported holding $171.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $114.9 million position. Other investors bullish on the company included Adage Capital Management, Electron Capital Partners, and AQR Capital Management. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to Dominion Resources, Inc. (NYSE:D), around 11.59% of its 13F portfolio. Shelter Harbor Advisors is also relatively very bullish on the stock, dishing out 7.57 percent of its 13F equity portfolio to D.
Now, some big names have jumped into Dominion Resources, Inc. (NYSE:D) headfirst. Soros Fund Management, managed by George Soros, assembled the biggest position in Dominion Resources, Inc. (NYSE:D). Soros Fund Management had $12.2 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs’s Wexford Capital also initiated a $11.6 million position during the quarter. The following funds were also among the new D investors: Alec Litowitz and Ross Laser’s Magnetar Capital, Michael Gelband’s ExodusPoint Capital, and Franklin Parlamis’s Aequim Alternative Investments.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Dominion Resources, Inc. (NYSE:D) but similarly valued. We will take a look at Canadian National Railway Company (NYSE:CNI), The Southern Company (NYSE:SO), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP). This group of stocks’ market caps resemble D’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CNI | 27 | 2084810 | -1 |
| SO | 31 | 1190703 | 9 |
| NOC | 43 | 843083 | 6 |
| COP | 65 | 2901952 | 8 |
| Average | 41.5 | 1755137 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $1755 million. That figure was $767 million in D’s case. ConocoPhillips (NYSE:COP) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 27 bullish hedge fund positions. Dominion Resources, Inc. (NYSE:D) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately D wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on D were disappointed as the stock returned 19.5% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
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.
