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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards CenterPoint Energy, Inc. (NYSE:CNP) and determine whether hedge funds skillfully traded this stock.
Is CenterPoint Energy, Inc. (NYSE:CNP) worth your attention right now? Money managers were becoming less hopeful. The number of long hedge fund positions shrunk by 2 in recent months. CenterPoint Energy, Inc. (NYSE:CNP) was in 30 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 38. Our calculations also showed that CNP 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Matthew Hulsizer of PEAK6 Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. 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 let's take a glance at the latest hedge fund action regarding CenterPoint Energy, Inc. (NYSE:CNP).
What does smart money think about CenterPoint Energy, Inc. (NYSE:CNP)?
Heading into the third quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CNP over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of CenterPoint Energy, Inc. (NYSE:CNP), with a stake worth $131.8 million reported as of the end of September. Trailing Adage Capital Management was Levin Easterly Partners, which amassed a stake valued at $65.7 million. Millennium Management, Zimmer Partners, 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 Blackstart Capital allocated the biggest weight to CenterPoint Energy, Inc. (NYSE:CNP), around 7.06% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, designating 5.74 percent of its 13F equity portfolio to CNP.
Due to the fact that CenterPoint Energy, Inc. (NYSE:CNP) has witnessed a decline in interest from the smart money, logic holds that there is a sect of money managers that slashed their full holdings in the second quarter. Intriguingly, Daniel S. Och's OZ Management said goodbye to the biggest position of the 750 funds tracked by Insider Monkey, totaling an estimated $12.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also dropped its stock, about $6.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the second quarter.
Let's now take a look at hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). We will take a look at Annaly Capital Management, Inc. (NYSE:NLY), PPD, Inc. (NASDAQ:PPD), Lamb Weston Holdings, Inc. (NYSE:LW), Guidewire Software Inc (NYSE:GWRE), Brookfield Property Partners LP (NASDAQ:BPY), Fidelity National Financial Inc (NYSE:FNF), and Huntington Bancshares Incorporated (NASDAQ:HBAN). This group of stocks' market caps resemble CNP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLY,21,288668,-6 PPD,27,620340,0 LW,25,189982,-4 GWRE,29,1008560,-5 BPY,6,43730,-1 FNF,47,1052423,4 HBAN,30,90448,1 Average,26.4,470593,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $471 million. That figure was $480 million in CNP's case. Fidelity National Financial Inc (NYSE:FNF) is the most popular stock in this table. On the other hand Brookfield Property Partners LP (NASDAQ:BPY) is the least popular one with only 6 bullish hedge fund positions. CenterPoint Energy, Inc. (NYSE:CNP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CNP is 56. 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 23.8% in 2020 through September 14th and beat the market by 17.6 percentage points. Unfortunately CNP wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CNP were disappointed as the stock returned 5.4% 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.
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Disclosure: None. This article was originally published at Insider Monkey.