While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Exelon Corporation (NASDAQ:EXC).
Exelon Corporation (NASDAQ:EXC) was in 34 hedge funds' portfolios at the end of September. EXC investors should pay attention to an increase in support from the world's most elite money managers lately. There were 32 hedge funds in our database with EXC holdings at the end of the previous quarter. Our calculations also showed that EXC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="aligncenter" width="450"] Phill Gross of Adage Capital Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a glance at the key hedge fund action surrounding Exelon Corporation (NASDAQ:EXC).
Hedge fund activity in Exelon Corporation (NASDAQ:EXC)
Heading into the fourth quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in EXC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, AQR Capital Management was the largest shareholder of Exelon Corporation (NASDAQ:EXC), with a stake worth $870.8 million reported as of the end of September. Trailing AQR Capital Management was GLG Partners, which amassed a stake valued at $277.1 million. Citadel Investment Group, Adage Capital Management, and Two Sigma Advisors 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 Electron Capital Partners allocated the biggest weight to Exelon Corporation (NASDAQ:EXC), around 8.52% of its portfolio. Ecofin Ltd is also relatively very bullish on the stock, dishing out 8.26 percent of its 13F equity portfolio to EXC.
As industrywide interest jumped, some big names have been driving this bullishness. Castle Hook Partners, managed by Josh Donfeld and David Rogers, assembled the biggest position in Exelon Corporation (NASDAQ:EXC). Castle Hook Partners had $37.3 million invested in the company at the end of the quarter. Peter J. Hark's Shelter Harbor Advisors also initiated a $9.7 million position during the quarter. The following funds were also among the new EXC investors: Steve Pattyn's Yaupon Capital, Zilvinas Mecelis's Covalis Capital, and Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Exelon Corporation (NASDAQ:EXC) but similarly valued. We will take a look at Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG), Kinder Morgan Inc (NYSE:KMI), L3Harris Technologies, Inc. (NYSE:LHX), and American Electric Power Company, Inc. (NYSE:AEP). This group of stocks' market caps are similar to EXC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SMFG,10,553308,-4 KMI,33,1467589,-4 LHX,48,2486967,18 AEP,31,1768736,4 Average,30.5,1569150,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $1569 million. That figure was $2029 million in EXC's case. L3Harris Technologies, Inc. (NYSE:LHX) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Group, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. Exelon Corporation (NASDAQ:EXC) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EXC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EXC were disappointed as the stock returned -7.3% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.