At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
El Paso Electric Company (NYSE:EE) was in 22 hedge funds' portfolios at the end of the first quarter of 2019. EE has seen a decrease in support from the world's most elite money managers of late. There were 23 hedge funds in our database with EE positions at the end of the previous quarter. Our calculations also showed that ee isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
Let's take a look at the fresh hedge fund action encompassing El Paso Electric Company (NYSE:EE).
How are hedge funds trading El Paso Electric Company (NYSE:EE)?
At Q1's end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 13 hedge funds with a bullish position in EE 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.
According to Insider Monkey's hedge fund database, Mario Gabelli's GAMCO Investors has the biggest position in El Paso Electric Company (NYSE:EE), worth close to $82.1 million, corresponding to 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which holds a $77.2 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism comprise Jos Shaver's Electron Capital Partners, Ken Griffin's Citadel Investment Group and Noam Gottesman's GLG Partners.
Because El Paso Electric Company (NYSE:EE) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there is a sect of hedgies that elected to cut their entire stakes by the end of the third quarter. Interestingly, Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital dropped the biggest stake of the 700 funds tracked by Insider Monkey, comprising close to $10.2 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $7.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as El Paso Electric Company (NYSE:EE) but similarly valued. These stocks are WESCO International, Inc. (NYSE:WCC), Columbia Banking System Inc (NASDAQ:COLB), Ares Management Corporation (NYSE:ARES), and Prospect Capital Corporation (NASDAQ:PSEC). All of these stocks' market caps resemble EE's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WCC,26,467300,0 COLB,8,120607,-2 ARES,14,232188,3 PSEC,11,16611,0 Average,14.75,209177,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $349 million in EE's case. WESCO International, Inc. (NYSE:WCC) is the most popular stock in this table. On the other hand Columbia Banking System Inc (NASDAQ:COLB) is the least popular one with only 8 bullish hedge fund positions. El Paso Electric Company (NYSE:EE) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately EE wasn't nearly as popular as these 20 stocks and hedge funds that were betting on EE were disappointed as the stock returned -2.5% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.