We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on PG&E Corporation (NYSE:PCG).
PG&E Corporation (NYSE:PCG) investors should pay attention to a decrease in hedge fund sentiment in recent months. Our calculations also showed that PCG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Abrams of Abrams Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the new hedge fund action encompassing PG&E Corporation (NYSE:PCG).
Hedge fund activity in PG&E Corporation (NYSE:PCG)
At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PCG over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
The largest stake in PG&E Corporation (NYSE:PCG) was held by Abrams Capital Management, which reported holding $271.8 million worth of stock at the end of September. It was followed by Anchorage Advisors with a $271.8 million position. Other investors bullish on the company included Silver Point Capital, Pentwater Capital Management, and Baupost Group. In terms of the portfolio weights assigned to each position Knighthead Capital allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 33.29% of its 13F portfolio. Silver Point Capital is also relatively very bullish on the stock, setting aside 20.54 percent of its 13F equity portfolio to PCG.
Seeing as PG&E Corporation (NYSE:PCG) has faced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few money managers who were dropping their full holdings by the end of the third quarter. Interestingly, Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital sold off the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $123.6 million in stock, and John Paulson’s Paulson & Co was right behind this move, as the fund dumped about $26.2 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 16 funds by the end of the third quarter.
Let’s also examine hedge fund activity in other stocks similar to PG&E Corporation (NYSE:PCG). We will take a look at Synovus Financial Corp. (NYSE:SNV), Harley-Davidson, Inc. (NYSE:HOG), OneMain Holdings Inc (NYSE:OMF), and Penumbra Inc (NYSE:PEN). This group of stocks’ market caps match PCG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNV | 35 | 691562 | -4 |
| HOG | 19 | 104510 | -2 |
| OMF | 39 | 529947 | 10 |
| PEN | 30 | 308085 | 5 |
| Average | 30.75 | 408526 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $409 million. That figure was $2755 million in PCG’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Harley-Davidson, Inc. (NYSE:HOG) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks PG&E Corporation (NYSE:PCG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on PCG as the stock returned -14.9% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
