The fourth quarter was a rough one for most investors, as fears of a rising interest rate environment in the U.S, a trade war with China, and a more or less stagnant Europe, weighed heavily on the minds of investors. Both the S&P 500 and Russell 2000 sank as a result, with the Russell 2000, which is composed of smaller companies, being hit especially hard. This was primarily due to hedge funds, which are big supporters of small-cap stocks, pulling some of their capital out of the volatile markets during this time. Let's look at how this market volatility affected the sentiment of hedge funds towards CenterPoint Energy, Inc. (NYSE:CNP), and what that likely means for the prospects of the company and its stock.
Is CenterPoint Energy, Inc. (NYSE:CNP) worth your attention right now? Investors who are in the know are becoming hopeful. The number of long hedge fund positions rose by 17 recently. Our calculations also showed that CNP isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We're going to take a look at the fresh hedge fund action encompassing CenterPoint Energy, Inc. (NYSE:CNP).
What have hedge funds been doing with CenterPoint Energy, Inc. (NYSE:CNP)?
Heading into the fourth quarter of 2018, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 81% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CNP over the last 13 quarters. So, let's find out 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, Israel Englander's Millennium Management has the biggest position in CenterPoint Energy, Inc. (NYSE:CNP), worth close to $269.1 million, accounting for 0.3% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, led by Ken Griffin, holding a $188.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish contain Dmitry Balyasny's Balyasny Asset Management, Phill Gross and Robert Atchinson's Adage Capital Management and Jeffrey Talpins's Element Capital Management.
Consequently, specific money managers have jumped into CenterPoint Energy, Inc. (NYSE:CNP) headfirst. Carlson Capital, managed by Clint Carlson, assembled the biggest position in CenterPoint Energy, Inc. (NYSE:CNP). Carlson Capital had $68.8 million invested in the company at the end of the quarter. Jonathan Barrett and Paul Segal's Luminus Management also initiated a $67 million position during the quarter. The other funds with new positions in the stock are Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital, Sara Nainzadeh's Centenus Global Management, and ZilvinasáMecelis's Covalis Capital.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as CenterPoint Energy, Inc. (NYSE:CNP) but similarly valued. We will take a look at Invitation Homes Inc. (NYSE:INVH), Universal Health Services, Inc. (NYSE:UHS), Andeavor Logistics LP (NYSE:ANDX), and Vedanta Ltd (NYSE:VEDL). This group of stocks' market valuations match CNP's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position INVH,15,250887,5 UHS,32,1165594,1 ANDX,6,11720,0 VEDL,5,52265,-4 Average,14.5,370117,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $370 million. That figure was $1.35 billion in CNP's case. Universal Health Services, Inc. (NYSE:UHS) is the most popular stock in this table. On the other hand Vedanta Ltd (NYSE:VEDL) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks CenterPoint Energy, Inc. (NYSE:CNP) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.