Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Xcel Energy Inc (NYSE:XEL).
Xcel Energy Inc (NYSE:XEL) was in 22 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 28. XEL shareholders have witnessed an increase in hedge fund interest recently. There were 18 hedge funds in our database with XEL positions at the end of the first quarter. Our calculations also showed that XEL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
If you’d ask most traders, hedge funds are viewed as unimportant, outdated investment tools of years past. While there are over 8000 funds trading at present, We choose to focus on the top tier of this club, around 850 funds. It is estimated that this group of investors shepherd bulk of all hedge funds’ total capital, and by observing their matchless stock picks, Insider Monkey has revealed many investment strategies that have historically surpassed Mr. Market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.
Cliff Asness of AQR Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to check out the latest hedge fund action regarding Xcel Energy Inc (NYSE:XEL).
Do Hedge Funds Think XEL Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in XEL a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
More specifically, 0 was the largest shareholder of Xcel Energy Inc (NYSE:XEL), with a stake worth $60.1 million reported as of the end of June. Trailing Millennium Management was AQR Capital Management, which amassed a stake valued at $46.2 million. Citadel Investment Group, Echo Street Capital Management, and D E Shaw 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 TwinBeech Capital allocated the biggest weight to Xcel Energy Inc (NYSE:XEL), around 0.74% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, dishing out 0.59 percent of its 13F equity portfolio to XEL.
As aggregate interest increased, specific money managers were leading the bulls’ herd. Echo Street Capital Management, managed by Greg Poole, created the most valuable position in Xcel Energy Inc (NYSE:XEL). Echo Street Capital Management had $21.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $7.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Jinghua Yan’s TwinBeech Capital, and Renaissance Technologies.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Xcel Energy Inc (NYSE:XEL) but similarly valued. These stocks are Brown-Forman Corporation (NYSE:BF), Alcon Inc. (NYSE:ALC), Republic Services, Inc. (NYSE:RSG), Otis Worldwide Corporation (NYSE:OTIS), SBA Communications Corporation (NASDAQ:SBAC), Corning Incorporated (NYSE:GLW), and Welltower Inc. (NYSE:WELL). This group of stocks’ market valuations are similar to XEL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BF | 31 | 1667783 | -4 |
| ALC | 22 | 727825 | -1 |
| RSG | 34 | 1289299 | -2 |
| OTIS | 45 | 2406679 | -7 |
| SBAC | 43 | 2156941 | 5 |
| GLW | 42 | 521738 | 10 |
| WELL | 19 | 427197 | -2 |
| Average | 33.7 | 1313923 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $1314 million. That figure was $235 million in XEL’s case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 19 bullish hedge fund positions. Xcel Energy Inc (NYSE:XEL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XEL is 38.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately XEL wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); XEL investors were disappointed as the stock returned 0.2% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Xcel Energy Inc (NYSE:XEL)
Follow Xcel Energy Inc (NYSE:XEL)
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Disclosure: None. This article was originally published at Insider Monkey.
