Were Hedge Funds Right About Piling Into NextEra Energy, Inc. (NEE)?

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 at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded NextEra Energy, Inc. (NYSE:NEE) and determine whether the smart money was really smart about this stock.

NextEra Energy, Inc. (NYSE:NEE) investors should be aware of an increase in support from the world’s most elite money managers lately. Our calculations also showed that NEE isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 58 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.

Daniel Och, Founder of OZ Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action regarding NextEra Energy, Inc. (NYSE:NEE).

What does smart money think about NextEra Energy, Inc. (NYSE:NEE)?

At the end of the first quarter, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NEE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in NextEra Energy, Inc. (NYSE:NEE), which was worth $311.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $178.1 million worth of shares. Adage Capital Management, Citadel Investment Group, and D E Shaw 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, Inc. (NYSE:NEE), around 14.08% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, earmarking 8.91 percent of its 13F equity portfolio to NEE.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Renaissance Technologies,  initiated the most valuable position in NextEra Energy, Inc. (NYSE:NEE). Renaissance Technologies had $311.6 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin’s Senator Investment Group also initiated a $66.2 million position during the quarter. The other funds with brand new NEE positions are Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now take a look at hedge fund activity in other stocks similar to NextEra Energy, Inc. (NYSE:NEE). These stocks are Wells Fargo & Company (NYSE:WFC), AstraZeneca plc (NYSE:AZN), HSBC Holdings plc (NYSE:HSBC), and Philip Morris International Inc. (NYSE:PM). This group of stocks’ market values match NEE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $4407 million. That figure was $1436 million in NEE’s case. Wells Fargo & Company (NYSE:WFC) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 14 bullish hedge fund positions. NextEra Energy, Inc. (NYSE:NEE) 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. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately NEE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on NEE were disappointed as the stock returned 0.4% 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.

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