At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sempra Energy (NYSE:SRE) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Sempra Energy (NYSE:SRE) a buy here? Hedge funds were taking an optimistic view. The number of long hedge fund positions rose by 8 in recent months. Sempra Energy (NYSE:SRE) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SRE isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
If you’d ask most shareholders, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are more than 8000 funds trading today, Our experts hone in on the bigwigs of this club, about 850 funds. These hedge fund managers command the lion’s share of the smart money’s total asset base, and by shadowing their first-class equity investments, Insider Monkey has brought to light many investment strategies that have historically exceeded the broader indices. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Michael Platt of BlueCrest Capital Mgmt.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a gander at the fresh hedge fund action surrounding Sempra Energy (NYSE:SRE).
How have hedgies been trading Sempra Energy (NYSE:SRE)?
At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SRE over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the number one position in Sempra Energy (NYSE:SRE). D E Shaw has a $91.8 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, holding a $90.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish consist of Phill Gross and Robert Atchinson’s Adage Capital Management, D. E. Shaw’s D E Shaw and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Highbridge Capital Management allocated the biggest weight to Sempra Energy (NYSE:SRE), around 2.97% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, setting aside 1.34 percent of its 13F equity portfolio to SRE.
As industrywide interest jumped, key hedge funds have jumped into Sempra Energy (NYSE:SRE) headfirst. Weiss Asset Management, managed by Andrew Weiss, established the biggest position in Sempra Energy (NYSE:SRE). Weiss Asset Management had $12.2 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $6 million position during the quarter. The other funds with brand new SRE positions are Highbridge Capital Management, Jinghua Yan’s TwinBeech Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sempra Energy (NYSE:SRE) but similarly valued. These stocks are Snap Inc. (NYSE:SNAP), The Bank of New York Mellon Corporation (NYSE:BK), Bank of Montreal (NYSE:BMO), Constellation Brands, Inc. (NYSE:STZ), Thomson Reuters Corporation (NYSE:TRI), Banco Bradesco SA (NYSE:BBD), and Public Storage (NYSE:PSA). This group of stocks’ market valuations resemble SRE’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNAP | 49 | 1601957 | 1 |
| BK | 48 | 4431288 | -4 |
| BMO | 13 | 107019 | 0 |
| STZ | 53 | 1653433 | 3 |
| TRI | 25 | 440519 | 3 |
| BBD | 18 | 235952 | 3 |
| PSA | 26 | 712541 | -1 |
| Average | 33.1 | 1311816 | 0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $1312 million. That figure was $635 million in SRE’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 13 bullish hedge fund positions. Sempra Energy (NYSE:SRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SRE is 67.5. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately SRE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SRE were disappointed as the stock returned 5.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
