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Did Hedge Funds Drop The Ball On TerraForm Power Inc (TERP) ?

Reymerlyn Martin

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at TerraForm Power Inc (NASDAQ:TERP) from the perspective of those elite funds.

Is TerraForm Power Inc (NASDAQ:TERP) undervalued? Prominent investors are getting more bullish. The number of bullish hedge fund bets increased by 1 lately. Our calculations also showed that TERP isn't among the 30 most popular stocks among hedge funds (view video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bernard Lambilliotte - Ecofin

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the recent hedge fund action encompassing TerraForm Power Inc (NASDAQ:TERP).

What does smart money think about TerraForm Power Inc (NASDAQ:TERP)?

At Q2's end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards TERP over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

TERP_oct2019

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the most valuable position in TerraForm Power Inc (NASDAQ:TERP), worth close to $89.7 million, amounting to 0.1% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $23.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism include D. E. Shaw's D E Shaw, Bernard Lambilliotte's Ecofin Ltd and Ken Griffin's Citadel Investment Group.

As aggregate interest increased, specific money managers have jumped into TerraForm Power Inc (NASDAQ:TERP) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the most valuable position in TerraForm Power Inc (NASDAQ:TERP). Two Sigma Advisors had $0.8 million invested in the company at the end of the quarter. Minhua Zhang's Weld Capital Management also initiated a $0.7 million position during the quarter. The following funds were also among the new TERP investors: Steve Cohen's Point72 Asset Management and Michael Gelband's ExodusPoint Capital.

Let's also examine hedge fund activity in other stocks similar to TerraForm Power Inc (NASDAQ:TERP). These stocks are Chesapeake Energy Corporation (NYSE:CHK), Texas Capital Bancshares Inc (NASDAQ:TCBI), FireEye Inc (NASDAQ:FEYE), and Exponent, Inc. (NASDAQ:EXPO). This group of stocks' market caps are similar to TERP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CHK,18,96204,-2 TCBI,19,237820,0 FEYE,29,345965,2 EXPO,15,108248,-3 Average,20.25,197059,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $163 million in TERP's case. FireEye Inc (NASDAQ:FEYE) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks TerraForm Power Inc (NASDAQ:TERP) is even less popular than EXPO. Hedge funds clearly dropped the ball on TERP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on TERP as the stock returned 29% during the third quarter and outperformed the market by an even larger margin.

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

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