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Is Hawaiian Electric Industries, Inc. (HE) Going to Burn These Hedge Funds?

Nina Todic

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Hawaiian Electric Industries, Inc. (NYSE:HE).

Is Hawaiian Electric Industries, Inc. (NYSE:HE) a great investment now? The best stock pickers are selling. The number of long hedge fund bets were trimmed by 3 lately. Our calculations also showed that HE isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). HE was in 14 hedge funds' portfolios at the end of the third quarter of 2019. There were 17 hedge funds in our database with HE positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 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_30493" align="aligncenter" width="498"] Jeffrey Ubben of ValueAct Capital[/caption]

Jeff Ubben VALUEACT CAPITAL

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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the latest hedge fund action encompassing Hawaiian Electric Industries, Inc. (NYSE:HE).

What does smart money think about Hawaiian Electric Industries, Inc. (NYSE:HE)?

At Q3's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards HE over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, ValueAct Capital held the most valuable stake in Hawaiian Electric Industries, Inc. (NYSE:HE), which was worth $73.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $29.2 million worth of shares. Winton Capital Management, GLG Partners, 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 ValueAct Capital allocated the biggest weight to Hawaiian Electric Industries, Inc. (NYSE:HE), around 0.8% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.34 percent of its 13F equity portfolio to HE.

Since Hawaiian Electric Industries, Inc. (NYSE:HE) has witnessed falling interest from the entirety of the hedge funds we track, it's safe to say that there exists a select few hedgies that elected to cut their entire stakes in the third quarter. Interestingly, Steve Cohen's Point72 Asset Management said goodbye to the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at about $1 million in stock, and Ken Griffin's Citadel Investment Group was right behind this move, as the fund dumped about $0.4 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds in the third quarter.

Let's check out hedge fund activity in other stocks similar to Hawaiian Electric Industries, Inc. (NYSE:HE). We will take a look at Nutanix, Inc. (NASDAQ:NTNX), Companhia Energetica de Minas Gerais (NYSE:CIG), Choice Hotels International, Inc. (NYSE:CHH), and Southwest Gas Holdings, Inc. (NYSE:SWX). All of these stocks' market caps resemble HE's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NTNX,24,320502,-1 CIG,8,54517,0 CHH,20,171880,1 SWX,20,252769,4 Average,18,199917,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $200 million. That figure was $189 million in HE's case. Nutanix, Inc. (NASDAQ:NTNX) is the most popular stock in this table. On the other hand Companhia Energetica de Minas Gerais (NYSE:CIG) is the least popular one with only 8 bullish hedge fund positions. Hawaiian Electric Industries, Inc. (NYSE:HE) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately HE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HE investors were disappointed as the stock returned -3.6% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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