NiSource Inc. (NI): Why Are Top Investors Fleeing?

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small-caps are where they can generate significant out-performance. That’s why we pay special attention to hedge fund activity in these stocks.

Is NiSource Inc. (NYSE:NI) a good investment right now? The sinking sentiment among top money managers says no. The number of bullish hedge fund positions were trimmed by 7 in Q3. NiSource Inc. was in 23 hedge funds’ portfolios at the end of September. There were 30 hedge funds in our database with NiSource Inc. positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Atmos Energy Corporation (NYSE:ATO), OneMain Holdings Inc (NYSE:LEAF), and Dicks Sporting Goods Inc (NYSE:DKS) to gather more data points.

In today’s marketplace there are many signals investors have at their disposal to value stocks. A pair of the most under-the-radar signals are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best money managers can trounce their index-focused peers by a significant margin (see the details here).

Keeping this in mind, we’re going to take a look at the latest action regarding NiSource Inc. (NYSE:NI).

Hedge fund activity in NiSource Inc. (NYSE:NI)

At the end of the third quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a 23% fall from one quarter earlier. With hedgies’ capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Israel Englander’s Millennium Management has the largest position in NiSource Inc. (NYSE:NI), worth close to $136.9 million, comprising 0.3% of its total 13F portfolio. On Millennium Management’s heels is Phill Gross and Robert Atchinson’s Adage Capital Management, with an $82.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Stuart J. Zimmer’s Zimmer Partners, Clint Carlson’s Carlson Capital, and Ken Griffin’s Citadel Investment Group.

Since NiSource Inc. (NYSE:NI) has witnessed a declination in interest from the smart money, it’s safe to say that there is a sect of hedge funds that elected to cut their entire stakes last quarter. It’s worth mentioning that James Crichton’s Hitchwood Capital Management cut the biggest position of the “upper crust” of funds watched by Insider Monkey, totaling about $109.4 million in stock, and Kevin D. Eng’s Columbus Hill Capital Management was right behind this move, as the fund sold off about $92.1 million worth of shares. These moves are interesting, as total hedge fund interest fell by 7 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to NiSource Inc. (NYSE:NI). These stocks are Atmos Energy Corporation (NYSE:ATO), OneMain Holdings Inc (NYSE:LEAF), Dicks Sporting Goods Inc (NYSE:DKS), and Packaging Corp Of America (NYSE:PKG). This group of stocks’ market values are closest to NiSource Inc.’s market value.

As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $1.08 billion. That figure was $490 million in NiSource Inc.’s case. OneMain Holdings Inc (NYSE:LEAF) is the most popular stock in this table. On the other hand Atmos Energy Corporation (NYSE:ATO) is the least popular one with only 11 bullish hedge fund positions. NiSource Inc. (NYSE:NI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on and in which recent sentiment isn’t so poor. In this regard OneMain Holdings Inc might be a better candidate to consider a long position.