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Duke Energy Corporation (DUK) Fell Out Of Favor With Hedge Funds

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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Duke Energy Corporation (NYSE:DUK).

Duke Energy Corporation (NYSE:DUK) investors should pay attention to a decrease in enthusiasm from smart money of late. Duke Energy Corporation (NYSE:DUK) was in 34 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that DUK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Bruce Kovner, Caxton Associates LP
Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to check out the key hedge fund action surrounding Duke Energy Corporation (NYSE:DUK).

Do Hedge Funds Think DUK Is A Good Stock To Buy Now?

At the end of March, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in DUK over the last 23 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is DUK A Good Stock To Buy?
Is DUK A Good Stock To Buy?

Among these funds, D E Shaw held the most valuable stake in Duke Energy Corporation (NYSE:DUK), which was worth $132.9 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $87.3 million worth of shares. Two Sigma Advisors, Adage Capital Management, and Renaissance Technologies 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 Claar Advisors allocated the biggest weight to Duke Energy Corporation (NYSE:DUK), around 4.03% of its 13F portfolio. Covalis Capital is also relatively very bullish on the stock, earmarking 1.55 percent of its 13F equity portfolio to DUK.

Judging by the fact that Duke Energy Corporation (NYSE:DUK) has faced declining sentiment from the aggregate hedge fund industry, it's easy to see that there is a sect of money managers that elected to cut their entire stakes heading into Q2. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, comprising close to $9.4 million in stock. Bruce Kovner's fund, Caxton Associates LP, also said goodbye to its stock, about $8.8 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 4 funds heading into Q2.

Let's also examine hedge fund activity in other stocks similar to Duke Energy Corporation (NYSE:DUK). These stocks are Enbridge Inc (NYSE:ENB), Mercadolibre Inc (NASDAQ:MELI), CME Group Inc (NASDAQ:CME), CSX Corporation (NYSE:CSX), Baidu, Inc. (NASDAQ:BIDU), Activision Blizzard, Inc. (NASDAQ:ATVI), and ConocoPhillips (NYSE:COP). This group of stocks' market valuations are similar to DUK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENB,22,144689,-6 MELI,69,5223036,-10 CME,60,2399257,2 CSX,53,3699622,-5 BIDU,89,6572291,38 ATVI,76,3580901,-5 COP,51,1205455,2 Average,60,3260750,2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 60 hedge funds with bullish positions and the average amount invested in these stocks was $3261 million. That figure was $602 million in DUK's case. Baidu, Inc. (NASDAQ:BIDU) is the most popular stock in this table. On the other hand Enbridge Inc (NYSE:ENB) is the least popular one with only 22 bullish hedge fund positions. Duke Energy Corporation (NYSE:DUK) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for DUK is 36.8. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately DUK wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); DUK investors were disappointed as the stock returned 4.3% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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