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 NextEra Energy, Inc. (NYSE:NEE) and see how the stock performed in comparison to hedge funds’ consensus picks.
NextEra Energy, Inc. (NYSE:NEE) shareholders have witnessed an increase in support from the world’s most elite money managers of late. Our calculations also showed that NEE 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 let’s take a look at the latest hedge fund action surrounding NextEra Energy, Inc. (NYSE:NEE).
What have hedge funds been doing with NextEra Energy, Inc. (NYSE:NEE)?
Heading into the fourth quarter of 2019, a total of 41 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 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GQG Partners held the most valuable stake in NextEra Energy, Inc. (NYSE:NEE), which was worth $204.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $157.3 million worth of shares. AQR Capital Management, Adage Capital Management, and Sculptor Capital 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 NextEra Energy, Inc. (NYSE:NEE), around 11.77% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, setting aside 11.15 percent of its 13F equity portfolio to NEE.
Consequently, key hedge funds were leading the bulls’ herd. D E Shaw, managed by David E. Shaw, assembled the biggest position in NextEra Energy, Inc. (NYSE:NEE). D E Shaw had $85.4 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also made a $38.1 million investment in the stock during the quarter. The following funds were also among the new NEE investors: Israel Englander’s Millennium Management, Sculptor Capital, and Sara Nainzadeh’s Centenus Global Management.
Let’s also examine 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 AbbVie Inc (NYSE:ABBV), Lockheed Martin Corporation (NYSE:LMT), Broadcom Inc (NASDAQ:AVGO), and BHP Billiton plc (NYSE:BBL). This group of stocks’ market values resemble NEE’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ABBV | 61 | 4434502 | 6 |
| LMT | 46 | 1782982 | -2 |
| AVGO | 54 | 2515014 | 1 |
| BBL | 21 | 970915 | 1 |
| Average | 45.5 | 2425853 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.5 hedge funds with bullish positions and the average amount invested in these stocks was $2426 million. That figure was $1505 million in NEE’s case. AbbVie Inc (NYSE:ABBV) is the most popular stock in this table. On the other hand BHP Billiton plc (NYSE:BBL) is the least popular one with only 21 bullish hedge fund positions. NextEra Energy, Inc. (NYSE:NEE) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on NEE, though not to the same extent, as the stock returned 40.7% in 2019 (as of 12/23) and outperformed the market.
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.
