With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Nextera Energy Partners LP (NYSE:NEP).
Is Nextera Energy Partners LP (NYSE:NEP) a buy right now? Hedge funds are buying. The number of long hedge fund positions moved up by 2 in recent months. Our calculations also showed that NEP 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
Steven Cohen of Point72 Asset Management
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 view the recent hedge fund action surrounding Nextera Energy Partners LP (NYSE:NEP).
Hedge fund activity in Nextera Energy Partners LP (NYSE:NEP)
At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in NEP a year ago. With the smart money’s sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Point72 Asset Management held the most valuable stake in Nextera Energy Partners LP (NYSE:NEP), which was worth $16.5 million at the end of the third quarter. On the second spot was Ecofin Ltd which amassed $16 million worth of shares. Blackstart Capital, Renaissance Technologies, and Wexford Capital 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 Nextera Energy Partners LP (NYSE:NEP), around 7.23% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, designating 3.36 percent of its 13F equity portfolio to NEP.
Consequently, specific money managers have been driving this bullishness. Blackstart Capital, managed by Brian Olson, Baehyun Sung, and Jamie Waters, initiated the most valuable position in Nextera Energy Partners LP (NYSE:NEP). Blackstart Capital had $6.4 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $3.9 million investment in the stock during the quarter. The following funds were also among the new NEP investors: Nick Niell’s Arrowgrass Capital Partners, Peter Muller’s PDT Partners, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Nextera Energy Partners LP (NYSE:NEP) but similarly valued. We will take a look at Qualys Inc (NASDAQ:QLYS), Old National Bancorp (NYSE:ONB), Envestnet Inc (NYSE:ENV), and Telephone & Data Systems, Inc. (NYSE:TDS). This group of stocks’ market valuations resemble NEP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QLYS | 17 | 113053 | 0 |
| ONB | 10 | 23347 | 0 |
| ENV | 13 | 64119 | 0 |
| TDS | 26 | 301772 | 1 |
| Average | 16.5 | 125573 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.5 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $66 million in NEP’s case. Telephone & Data Systems, Inc. (NYSE:TDS) is the most popular stock in this table. On the other hand Old National Bancorp (NYSE:ONB) is the least popular one with only 10 bullish hedge fund positions. Nextera Energy Partners LP (NYSE:NEP) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NEP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEP investors were disappointed as the stock returned 1.6% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
