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 Eversource Energy (NYSE:ES).
Is Eversource Energy (NYSE:ES) a great investment right now? The smart money is getting less bullish. The number of long hedge fund bets fell by 2 in recent months. Our calculations also showed that ES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). ES was in 19 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with ES positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Cliff Asness of AQR Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the fresh hedge fund action encompassing Eversource Energy (NYSE:ES).
How have hedgies been trading Eversource Energy (NYSE:ES)?
Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ES 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.
When looking at the institutional investors followed by Insider Monkey, Stuart J. Zimmer’s Zimmer Partners has the largest position in Eversource Energy (NYSE:ES), worth close to $355.5 million, corresponding to 3.9% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $158.4 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that hold long positions encompass Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Clint Carlson’s Carlson Capital. In terms of the portfolio weights assigned to each position Shelter Harbor Advisors allocated the biggest weight to Eversource Energy (NYSE:ES), around 7.55% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, earmarking 3.87 percent of its 13F equity portfolio to ES.
Judging by the fact that Eversource Energy (NYSE:ES) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that elected to cut their entire stakes in the third quarter. Interestingly, Jonathan Barrett and Paul Segal’s Luminus Management dropped the biggest position of the 750 funds watched by Insider Monkey, totaling close to $29.6 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also sold off its stock, about $23.6 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Eversource Energy (NYSE:ES). We will take a look at Mercadolibre Inc (NASDAQ:MELI), CRH PLC (NYSE:CRH), SBA Communications Corporation (NASDAQ:SBAC), and Ventas, Inc. (NYSE:VTR). All of these stocks’ market caps are similar to ES’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MELI | 45 | 3156793 | -7 |
| CRH | 9 | 129764 | 2 |
| SBAC | 37 | 1537833 | 6 |
| VTR | 14 | 352435 | -4 |
| Average | 26.25 | 1294206 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $1294 million. That figure was $739 million in ES’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand CRH PLC (NYSE:CRH) is the least popular one with only 9 bullish hedge fund positions. Eversource Energy (NYSE:ES) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ES wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ES investors were disappointed as the stock returned -3.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
