The Utilities sector has only gained 0.33% year-to-date according to Morningstar data, as compared to SPDR S&P 500 ETF (SPY)’s 3.63% appreciation during the same period. We decided to take a closer look at the top hedge fund holdings in the sector following the recent round of 13F filings to see if they were able to pick the out-performers from this industry (or who they think will be the out-performers in the future). The five companies that dominated the list were Cheniere Energy, Inc. (NYSEMKT:LNG), Williams Companies Inc (NYSE:WMB), Verizon Communications Inc. (NYSE:VZ), Equinix Inc (NASDAQ:EQIX), and T-Mobile US Inc (NYSE:TMUS).
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Let us take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis point per month during the same period. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the prevalent arbitrage opportunities in the market by concentrating on small-cap stocks.
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Coming back to the most popular picks in the utilities sector, we begin with Cheniere Energy, Inc. (NYSEMKT:LNG), which has outperformed the sector with its gains of nearly 7% year-to-date. By the end of the first quarter a total of 81 hedge funds had invested $9.75 billion in the company, up from 75 firms with $7.96 billion at the end of 2014. Andreas Halvorsen‘s Viking Global remained positive about Cheniere Energy, Inc. (NYSEMKT:LNG)’s future prospects despite stiff competition from low oil prices. The fund increased its stake in the company by 56% during the first quarter to 15.45 million shares valued at $1.20 billion.
Williams Companies Inc (NYSE:WMB)’s stock has posted considerable returns of 17.91% so far this year. However, the $39.69 billion company saw a dip in popularity as 60 hedge funds had invested a total of $6.62 billion in the company at the end of March, as compared to 77 firms with $6.50 billion at the end of the previous quarter. Williams Companies Inc (NYSE:WMB) has a higher beta of 1.28 than its industry peers, which average around 0.64. In order to simplify its corporate structure Williams Companies Inc (NYSE:WMB) recently announced that it would acquire its master limited partnership Williams Partners (NYSE: WPZ) for $13.8 billion. The famous activist investor Dan Loeb offloaded his fund Third Point’s entire stake in Williams Companies Inc (NYSE:WMB), which amounted to 4.0 million shares, during the first quarter. Meanwhile Keith Meister‘s Corvex Capital stayed put with its sizable stake of 41.68 million shares during the first three months of the year.
Despite Verizon Communications Inc. (NYSE:VZ)’s modest year-to-date returns of 6.05%, the company has met the same fate as Williams Companies Inc (NYSE:WMB) in terms of loss of interest from hedge funds as 59 firms had invested a total of $2.21 billion in the company at the end of March as compared with 63 funds with $2.96 billion at the end of 2014. Verizon Communications Inc. (NYSE:VZ) recently placed a bid of $4.4 billion to acquire AOL, Inc. (NYSE:AOL). According to some analysts, given the fact that AOL has mastered programmatic advertisement, the deal could provide Verizon Communications Inc. (NYSE:VZ) with just the right impetus to possibly take on giants like Google Inc (NASDAQ:GOOGL). Warren Buffett‘s Berkshire Hathaway is the largest shareholder of Verizon in our database as it held some 15.0 million shares valued at $729.50 million at the end of March.
Hedge funds with Equinix Inc (NASDAQ:EQIX) in their portfolios increased to 50, with a total investment of $4.16 billion, up from 43, though invested capital declined from $4.34 billion at the end of the fourth quarter. The $15.26 billion networking company has appreciated by 18.2% year-to-date. Both Stifel and Gabelli & Co recently downgraded Equinix Inc (NASDAQ:EQIX) to ‘Hold’ from ‘Buy’. The expansion in the company’s top line (13% year-over-year) has failed to trickle down to the bottom line according to the latest financial results. Net losses for the quarter amounted to $355.10 million as compared to net income of $45.19 million in the same quarter a year ago. John H. Scully’s SPO Advisory Corp holds 5.59 million shares of Equinix Inc (NASDAQ:EQIX) valued at $1.30 billion.
T-Mobile US Inc (NYSE:TMUS) posted the highest gains of 36.15% among the top picks in the utilities sector. A total of 50 hedge funds had invested $2.59 billion in the company at the end of March as compared to 51 firms with $2.21 billion at the end of 2014. After the failure to sell T-Mobile US Inc (NYSE:TMUS) to Sprint last year, Deutsche Telkom again expressed the desire to look for a buyer that could help improve T-Mobile US Inc (NYSE:TMUS)’s profitability. John Paulson’s Paulson & Co increased its stake in the company by 56% in the first quarter to 23.4 million shares valued at $755.65 million.
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