It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Index returned approximately 13.1% in the first 2.5 months of this year (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Companhia Paranaense de Energia – COPEL (NYSE:ELP).
Companhia Paranaense de Energia – COPEL (NYSE:ELP) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of December. At the end of this article we will also compare ELP to other stocks including KBR, Inc. (NYSE:KBR), PotlatchDeltic Corporation (NASDAQ:PCH), and The Michaels Companies, Inc. (NASDAQ:MIK) to get a better sense of its popularity.
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 take a look at the key hedge fund action encompassing Companhia Paranaense de Energia – COPEL (NYSE:ELP).
How are hedge funds trading Companhia Paranaense de Energia – COPEL (NYSE:ELP)?
At Q4’s end, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. By comparison, 7 hedge funds held shares or bullish call options in ELP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in Companhia Paranaense de Energia – COPEL (NYSE:ELP). D E Shaw has a $14.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $7.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish contain Noam Gottesman’s GLG Partners, Israel Englander’s Millennium Management and Jim Simons’s Renaissance Technologies.
Due to the fact that Companhia Paranaense de Energia – COPEL (NYSE:ELP) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies who sold off their full holdings by the end of the third quarter. It’s worth mentioning that Michael Platt and William Reeves’s BlueCrest Capital Mgmt. sold off the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $0.5 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Companhia Paranaense de Energia – COPEL (NYSE:ELP) but similarly valued. We will take a look at KBR, Inc. (NYSE:KBR), PotlatchDeltic Corporation (NASDAQ:PCH), The Michaels Companies, Inc. (NASDAQ:MIK), and Nelnet, Inc. (NYSE:NNI). This group of stocks’ market caps resemble ELP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KBR | 26 | 345110 | 7 |
| PCH | 15 | 279786 | -1 |
| MIK | 30 | 255528 | 4 |
| NNI | 14 | 68393 | -1 |
| Average | 21.25 | 237204 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $35 million in ELP’s case. The Michaels Companies, Inc. (NASDAQ:MIK) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Companhia Paranaense de Energia – COPEL (NYSE:ELP) is even less popular than NNI. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on ELP, though not to the same extent, as the stock returned 23.9% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
