The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May and August as this time China pivoted and Trump put more pressure on China by increasing tariffs. Fourth quarter brought optimism to the markets and hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 37.4% through the end of November, vs. a gain of 27.5% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Duke Energy Corporation (NYSE:DUK), and what that likely means for the prospects of the company and its stock. VanEck Vectors Uranium+Nuclear Energy ETF (NYSE:NLR)'s second largest holding is Duke Energy with a 8% weight. Duke Energy is also the second largest holding in Utilities Select Sector SPDR Fund (NYSE:XLU) with a 7.8% weight.
Duke Energy Corporation (NYSE:DUK) shareholders have witnessed a decrease in hedge fund interest of late. DUK was in 28 hedge funds' portfolios at the end of September. There were 32 hedge funds in our database with DUK positions at the end of the previous quarter. Our calculations also showed that DUK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' 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 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
[caption id="attachment_25583" align="aligncenter" width="449"] George Soros of Soros Fund Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a peek at the key hedge fund action regarding Duke Energy Corporation (NYSE:DUK).
What have hedge funds been doing with Duke Energy Corporation (NYSE:DUK)?
At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in DUK a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in Duke Energy Corporation (NYSE:DUK), worth close to $704 million, comprising 0.6% of its total 13F portfolio. Coming in second is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $126.1 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism consist of Phill Gross and Robert Atchinson's Adage Capital Management, Cliff Asness's AQR Capital Management and Jos Shaver's Electron Capital Partners. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to Duke Energy Corporation (NYSE:DUK), around 10.58% of its portfolio. Blackstart Capital is also relatively very bullish on the stock, setting aside 6.74 percent of its 13F equity portfolio to DUK.
Because Duke Energy Corporation (NYSE:DUK) has faced bearish sentiment from the smart money, it's easy to see that there was a specific group of hedgies that decided to sell off their positions entirely heading into Q4. It's worth mentioning that Dmitry Balyasny's Balyasny Asset Management cut the biggest position of the 750 funds tracked by Insider Monkey, comprising close to $64.2 million in stock. Steve Cohen's fund, Point72 Asset Management, also dumped its stock, about $36.1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Duke Energy Corporation (NYSE:DUK). We will take a look at The Bank of Nova Scotia (NYSE:BNS), BlackRock, Inc. (NYSE:BLK), Intuit Inc. (NASDAQ:INTU), and Westpac Banking Corporation (NYSE:WBK). This group of stocks' market values match DUK's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BNS,15,677866,-1 BLK,42,1040933,-1 INTU,47,2011283,1 WBK,4,42624,1 Average,27,943177,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27 hedge funds with bullish positions and the average amount invested in these stocks was $943 million. That figure was $1317 million in DUK's case. Intuit Inc. (NASDAQ:INTU) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 4 bullish hedge fund positions. Duke Energy Corporation (NYSE:DUK) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately DUK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on DUK were disappointed as the stock returned -7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.