Should I Buy National Grid plc (NGG)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider National Grid plc (NYSE:NGG) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

National Grid plc (NYSE:NGG) has seen an increase in hedge fund interest recently. National Grid plc (NYSE:NGG) was in 6 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. There were 2 hedge funds in our database with NGG holdings at the end of June. Our calculations also showed that NGG isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 66 percentage points since March 2017 (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.

Zilvinas Zach Mecelis of Covalis Capital

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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. 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 website. Keeping this in mind we’re going to review the recent hedge fund action regarding National Grid plc (NYSE:NGG).

How are hedge funds trading National Grid plc (NYSE:NGG)?

Heading into the fourth quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 200% from the second quarter of 2020. On the other hand, there were a total of 10 hedge funds with a bullish position in NGG a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of National Grid plc (NYSE:NGG), with a stake worth $368.7 million reported as of the end of September. Trailing Renaissance Technologies was Covalis Capital, which amassed a stake valued at $7.6 million. Arrowstreet Capital, PEAK6 Capital Management, and Citadel Investment Group 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 Covalis Capital allocated the biggest weight to National Grid plc (NYSE:NGG), around 3.22% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.37 percent of its 13F equity portfolio to NGG.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. Covalis Capital, managed by Zilvinas Mecelis, initiated the most valuable position in National Grid plc (NYSE:NGG). Covalis Capital had $7.6 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as National Grid plc (NYSE:NGG) but similarly valued. We will take a look at American Electric Power Company, Inc. (NASDAQ:AEP), Rocket Companies, Inc. (NYSE:RKT), UBS Group AG (NYSE:UBS), DocuSign, Inc. (NASDAQ:DOCU), General Dynamics Corporation (NYSE:GD), Thomson Reuters Corporation (NYSE:TRI), and TC Energy Corporation (NYSE:TRP). This group of stocks’ market values resemble NGG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1464 million. That figure was $379 million in NGG’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks National Grid plc (NYSE:NGG) is even less popular than TRP. Our overall hedge fund sentiment score for NGG is 22.8. 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. Hedge funds dodged a bullet by taking a bearish stance towards NGG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th but managed to beat the market again by 16.1 percentage points. Unfortunately NGG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); NGG investors were disappointed as the stock returned 3.1% since the end of the third quarter (through 11/27) 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 most of these stocks already outperformed the market so far in 2020.

Disclosure: None. This article was originally published at Insider Monkey.