2018's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards CenterPoint Energy, Inc. (NYSE:CNP) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.
Is CenterPoint Energy, Inc. (NYSE:CNP) a bargain? The best stock pickers are getting less bullish. The number of long hedge fund positions were trimmed by 2 lately. Our calculations also showed that CNP isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's take a look at the new hedge fund action regarding CenterPoint Energy, Inc. (NYSE:CNP).
Hedge fund activity in CenterPoint Energy, Inc. (NYSE:CNP)
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the previous quarter. By comparison, 38 hedge funds held shares or bullish call options in CNP a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in CenterPoint Energy, Inc. (NYSE:CNP), which was worth $306.2 million at the end of the third quarter. On the second spot was Levin Easterly Partners which amassed $206.5 million worth of shares. Adage Capital Management, Renaissance Technologies, and Millennium Management 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 Levin Easterly Partners allocated the biggest weight to CenterPoint Energy, Inc. (NYSE:CNP), around 5.8% of its 13F portfolio. Aequim Alternative Investments is also relatively very bullish on the stock, setting aside 2.51 percent of its 13F equity portfolio to CNP.
Since CenterPoint Energy, Inc. (NYSE:CNP) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of fund managers who were dropping their positions entirely by the end of the third quarter. It's worth mentioning that Stuart J. Zimmer's Zimmer Partners said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, worth an estimated $138.4 million in stock. Jonathan Barrett and Paul Segal's fund, Luminus Management, also dumped its stock, about $52.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). We will take a look at Magellan Midstream Partners, L.P. (NYSE:MMP), Celanese Corporation (NYSE:CE), ViacomCBS Inc. (NYSE:CBS), and POSCO (NYSE:PKX). 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 MMP,12,55553,2 CE,18,944524,-2 CBS,49,1742539,-1 PKX,9,46468,-3 Average,22,697271,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $697 million. That figure was $1090 million in CNP's case. ViacomCBS Inc. (NYSE:CBS) is the most popular stock in this table. On the other hand POSCO (NYSE:PKX) is the least popular one with only 9 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately CNP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CNP were disappointed as the stock returned 0.6% in 2019 and trailed 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.