We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. 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 TerraForm Power Inc (NASDAQ:TERP).
TerraForm Power Inc (NASDAQ:TERP) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that TERP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Bernard Lambilliotte of Ecofin
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the recent hedge fund action surrounding TerraForm Power Inc (NASDAQ:TERP).
Hedge fund activity in TerraForm Power Inc (NASDAQ:TERP)
At the end of the third quarter, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in TERP over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in TerraForm Power Inc (NASDAQ:TERP), which was worth $152.2 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $47.8 million worth of shares. D E Shaw, Ecofin Ltd, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to TerraForm Power Inc (NASDAQ:TERP), around 6.39% of its 13F portfolio. Vertex One Asset Management is also relatively very bullish on the stock, designating 0.35 percent of its 13F equity portfolio to TERP.
Due to the fact that TerraForm Power Inc (NASDAQ:TERP) has experienced a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of money managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Ken Griffin’s Citadel Investment Group cut the biggest position of the “upper crust” of funds monitored by Insider Monkey, comprising an estimated $12.4 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund sold off about $3.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as TerraForm Power Inc (NASDAQ:TERP) but similarly valued. We will take a look at Allakos Inc. (NASDAQ:ALLK), Lancaster Colony Corporation (NASDAQ:LANC), NorthWestern Corporation (NYSE:NWE), and Ormat Technologies, Inc. (NYSE:ORA). This group of stocks’ market caps resemble TERP’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALLK | 16 | 399428 | 8 |
| LANC | 24 | 224423 | 6 |
| NWE | 15 | 233336 | 0 |
| ORA | 16 | 193542 | 7 |
| Average | 17.75 | 262682 | 5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $263 million. That figure was $247 million in TERP’s case. Lancaster Colony Corporation (NASDAQ:LANC) is the most popular stock in this table. On the other hand NorthWestern Corporation (NYSE:NWE) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks TerraForm Power Inc (NASDAQ:TERP) is even less popular than NWE. Hedge funds dodged a bullet by taking a bearish stance towards TERP. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately TERP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); TERP investors were disappointed as the stock returned -13.8% during the fourth quarter (through the end of November) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
