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 Hawaiian Electric Industries, Inc. (NYSE:HE) from the perspective of those elite funds.
Hawaiian Electric Industries, Inc. (NYSE:HE) was in 11 hedge funds’ portfolios at the end of September. HE shareholders have witnessed an increase in hedge fund sentiment of late. There were 10 hedge funds in our database with HE positions at the end of the previous quarter. Our calculations also showed that HE isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let’s take a gander at the new hedge fund action surrounding Hawaiian Electric Industries, Inc. (NYSE:HE).
What have hedge funds been doing with Hawaiian Electric Industries, Inc. (NYSE:HE)?
Heading into the fourth quarter of 2018, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the second quarter of 2018. On the other hand, there were a total of 7 hedge funds with a bullish position in HE at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ValueAct Capital was the largest shareholder of Hawaiian Electric Industries, Inc. (NYSE:HE), with a stake worth $42.6 million reported as of the end of September. Trailing ValueAct Capital was Renaissance Technologies, which amassed a stake valued at $27 million. AQR Capital Management, Blackstart Capital, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have jumped into Hawaiian Electric Industries, Inc. (NYSE:HE) headfirst. ValueAct Capital, managed by Jeffrey Ubben, assembled the biggest position in Hawaiian Electric Industries, Inc. (NYSE:HE). ValueAct Capital had $42.6 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.4 million position during the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Hawaiian Electric Industries, Inc. (NYSE:HE) but similarly valued. These stocks are MB Financial, Inc. (NASDAQ:MBFI), Ryder System, Inc. (NYSE:R), Southwest Gas Holdings, Inc. (NYSE:SWX), and Taro Pharmaceutical Industries Ltd. (NYSE:TARO). All of these stocks’ market caps resemble HE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MBFI | 13 | 237887 | -3 |
| R | 23 | 383351 | 6 |
| SWX | 13 | 177582 | 0 |
| TARO | 14 | 70986 | 5 |
| Average | 15.75 | 217452 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $217 million. That figure was $118 million in HE’s case. Ryder System, Inc. (NYSE:R) is the most popular stock in this table. On the other hand MB Financial, Inc. (NASDAQ:MBFI) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Hawaiian Electric Industries, Inc. (NYSE:HE) is even less popular than MBFI. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
