The elite funds run by legendary investors such as Dan Loeb and David Tepper make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentive to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at FirstEnergy Corp. (NYSE:FE) from the perspective of those elite funds.
FirstEnergy Corp. (NYSE:FE) has experienced an increase in hedge fund interest recently. FE was in 31 hedge funds’ portfolios at the end of the third quarter of 2016. There were 27 hedge funds in our database with FE holdings at the end of the previous quarter. At the end of this article we will also compare FE to other stocks including NetEase, Inc (ADR) (NASDAQ:NTES), Workday Inc (NYSE:WDAY), and Credicorp Ltd. (USA) (NYSE:BAP) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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What does the smart money think about FirstEnergy Corp. (NYSE:FE)?
Heading into the fourth quarter of 2016, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a rise of 15% from one quarter earlier. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, AQR Capital Management, managed by Cliff Asness, holds the number one position in FirstEnergy Corp. (NYSE:FE). AQR Capital Management has a $313.6 million position in the stock. Sitting at the No. 2 spot is Luminus Management, led by Jonathan Barrett and Paul Segal, holding a $200.1 million position; 5.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Jim Simons’ Renaissance Technologies, Dmitry Balyasny’s Balyasny Asset Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Balyasny Asset Management, established the most outsized position in FirstEnergy Corp. (NYSE:FE). Balyasny Asset Management had $115 million invested in the company at the end of the quarter. Daniel S. Och’s OZ Management also initiated a $43.5 million position during the quarter. The other funds with brand new FE positions are David Harding’s Winton Capital Management, Robert Vollero and Gentry T. Beach’s Vollero Beach Capital Partners, and Ken Griffin’s Citadel Investment Group.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as FirstEnergy Corp. (NYSE:FE) but similarly valued. These stocks are NetEase, Inc (ADR) (NASDAQ:NTES), Workday Inc (NYSE:WDAY), Credicorp Ltd. (USA) (NYSE:BAP), and Parker-Hannifin Corporation (NYSE:PH). This group of stocks’ market valuations match FE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTES | 39 | 2975270 | 12 |
| WDAY | 29 | 1406330 | 4 |
| BAP | 22 | 481522 | 1 |
| PH | 27 | 1331502 | -4 |
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.55 billion. That figure was $1.31 billion in FE’s case. NetEase, Inc (ADR) (NASDAQ:NTES) is the most popular stock in this table. On the other hand Credicorp Ltd. (USA) (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. FirstEnergy Corp. (NYSE:FE) 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. In this regard NTES might be a better candidate to consider a long position.
Disclosure: None
