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Hedge Funds Are Dumping NiSource Inc. (NI)

Asma UL Husna
·6 mins read

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought NiSource Inc. (NYSE:NI) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

NiSource Inc. (NYSE:NI) shareholders have witnessed a decrease in enthusiasm from smart money lately. NiSource Inc. (NYSE:NI) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistics is 28. There were 27 hedge funds in our database with NI holdings at the end of March. Our calculations also showed that NI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Now we're going to view the recent hedge fund action regarding NiSource Inc. (NYSE:NI).

What does smart money think about NiSource Inc. (NYSE:NI)?

At Q2's end, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -22% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in NI a year ago. With hedge funds' sentiment swirling, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

More specifically, Zimmer Partners was the largest shareholder of NiSource Inc. (NYSE:NI), with a stake worth $150.3 million reported as of the end of September. Trailing Zimmer Partners was D E Shaw, which amassed a stake valued at $72.3 million. Two Sigma Advisors, Renaissance Technologies, and Blackstart Capital 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 Blackstart Capital allocated the biggest weight to NiSource Inc. (NYSE:NI), around 7.33% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, designating 2.04 percent of its 13F equity portfolio to NI.

Since NiSource Inc. (NYSE:NI) has experienced falling interest from the aggregate hedge fund industry, logic holds that there is a sect of hedgies who sold off their entire stakes by the end of the second quarter. Intriguingly, Phill Gross and Robert Atchinson's Adage Capital Management sold off the largest stake of all the hedgies tracked by Insider Monkey, valued at close to $36.8 million in stock. Charles Davidson and Joseph Jacobs's fund, Wexford Capital, also dumped its stock, about $5 million worth. These transactions are interesting, as total hedge fund interest fell by 6 funds by the end of the second quarter.

Let's check out hedge fund activity in other stocks similar to NiSource Inc. (NYSE:NI). We will take a look at Equitable Holdings, Inc. (NYSE:EQH), RenaissanceRe Holdings Ltd. (NYSE:RNR), Clarivate Plc (NYSE:CCC), Charles River Laboratories International Inc. (NYSE:CRL), Natura &Co Holding S.A. (NYSE:NTCO), Brookfield Renewable Partners L.P. (NYSE:BEP), and Elanco Animal Health Incorporated (NYSE:ELAN). This group of stocks' market valuations resemble NI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQH,39,1111581,12 RNR,41,870861,11 CCC,45,1300868,17 CRL,41,1050760,5 NTCO,5,85507,-3 BEP,5,30355,2 ELAN,30,212753,4 Average,29.4,666098,6.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $301 million in NI's case. Clarivate Plc (NYSE:CCC) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 5 bullish hedge fund positions. NiSource Inc. (NYSE:NI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for NI is 41.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately NI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NI investors were disappointed as the stock returned -2.4% in the third 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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