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 Sunrun Inc (NASDAQ:RUN) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Sunrun Inc (NASDAQ:RUN) a bargain? Money managers were in a bearish mood. The number of long hedge fund bets shrunk by 3 lately. Sunrun Inc (NASDAQ:RUN) was in 21 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 24. Our calculations also showed that RUN 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Noam Gottesman of GLG Partners
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 lithium company which could also benefit from the electric car adoption. 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. 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 to get excerpts of these letters in your inbox. Keeping this in mind we’re going to go over the latest hedge fund action encompassing Sunrun Inc (NASDAQ:RUN).
How have hedgies been trading Sunrun Inc (NASDAQ:RUN)?
At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards RUN over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Tiger Global Management LLC was the largest shareholder of Sunrun Inc (NASDAQ:RUN), with a stake worth $587.1 million reported as of the end of September. Trailing Tiger Global Management LLC was Citadel Investment Group, which amassed a stake valued at $14.9 million. Two Sigma Advisors, Arosa Capital Management, and ExodusPoint 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 Sunrun Inc (NASDAQ:RUN), around 4.23% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 2.6 percent of its 13F equity portfolio to RUN.
Since Sunrun Inc (NASDAQ:RUN) has faced falling interest from hedge fund managers, logic holds that there lies a certain “tier” of money managers that slashed their full holdings by the end of the second quarter. It’s worth mentioning that D. E. Shaw’s D E Shaw dropped the largest stake of the 750 funds monitored by Insider Monkey, worth an estimated $1.5 million in stock. Martin D. Sass’s fund, MD Sass, also dumped its stock, about $1.4 million worth. These moves are important to note, as total hedge fund interest was cut by 3 funds by the end of the second quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sunrun Inc (NASDAQ:RUN) but similarly valued. We will take a look at DCP Midstream LP (NYSE:DCP), SINA Corp (NASDAQ:SINA), Umpqua Holdings Corp (NASDAQ:UMPQ), iRobot Corporation (NASDAQ:IRBT), LivaNova PLC (NASDAQ:LIVN), Capri Holdings Limited (NYSE:CPRI), and Inari Medical, Inc. (NASDAQ:NARI). This group of stocks’ market caps match RUN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DCP | 2 | 3369 | -2 |
| SINA | 16 | 103843 | 3 |
| UMPQ | 24 | 151735 | 1 |
| IRBT | 22 | 126930 | 3 |
| LIVN | 29 | 368844 | 5 |
| CPRI | 28 | 446164 | -1 |
| NARI | 19 | 79851 | 19 |
| Average | 20 | 182962 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $183 million. That figure was $683 million in RUN’s case. LivaNova PLC (NASDAQ:LIVN) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 2 bullish hedge fund positions. Sunrun Inc (NASDAQ:RUN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RUN is 63.4. 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. 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 24.8% in 2020 through the end of third quarter and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on RUN as the stock returned 290.8% during Q3 and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
