We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PPL Corporation (NYSE:PPL) and determine whether hedge funds skillfully traded this stock.
Is PPL Corporation (NYSE:PPL) a worthy investment now? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets retreated by 3 lately. PPL Corporation (NYSE:PPL) was in 25 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. Our calculations also showed that PPL 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). There were 28 hedge funds in our database with PPL holdings at the end of March. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most shareholders, hedge funds are viewed as worthless, old investment tools of yesteryear. While there are over 8000 funds in operation at present, We look at the upper echelon of this group, approximately 850 funds. Most estimates calculate that this group of people shepherd the lion's share of the hedge fund industry's total asset base, and by watching their best picks, Insider Monkey has unsheathed several investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Keeping this in mind let's take a glance at the recent hedge fund action surrounding PPL Corporation (NYSE:PPL).
What have hedge funds been doing with PPL Corporation (NYSE:PPL)?
At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in PPL 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.
More specifically, Electron Capital Partners was the largest shareholder of PPL Corporation (NYSE:PPL), with a stake worth $48.4 million reported as of the end of September. Trailing Electron Capital Partners was Adage Capital Management, which amassed a stake valued at $22.5 million. Millennium Management, AQR Capital Management, 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 Electron Capital Partners allocated the biggest weight to PPL Corporation (NYSE:PPL), around 5.31% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, earmarking 4.25 percent of its 13F equity portfolio to PPL.
Because PPL Corporation (NYSE:PPL) has witnessed bearish sentiment from the smart money, we can see that there were a few fund managers who sold off their full holdings heading into Q3. Interestingly, Zilvinas Mecelis's Covalis Capital dumped the largest investment of the "upper crust" of funds tracked by Insider Monkey, comprising close to $37.5 million in stock. Steve Cohen's fund, Point72 Asset Management, also sold off its stock, about $8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to PPL Corporation (NYSE:PPL). We will take a look at Edison International (NYSE:EIX), Wheaton Precious Metals Corp. (NYSE:WPM), Corning Incorporated (NYSE:GLW), TD Ameritrade Holding Corp. (NASDAQ:AMTD), Deutsche Bank Aktiengesellschaft (NYSE:DB), Nasdaq, Inc. (NASDAQ:NDAQ), and Copart, Inc. (NASDAQ:CPRT). All of these stocks' market caps are closest to PPL's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EIX,37,1670961,8 WPM,21,767509,-4 GLW,28,147576,-2 AMTD,47,1172699,1 DB,11,1266439,-1 NDAQ,25,153170,-1 CPRT,60,826695,12 Average,32.7,857864,1.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $858 million. That figure was $160 million in PPL's case. Copart, Inc. (NASDAQ:CPRT) is the most popular stock in this table. On the other hand Deutsche Bank Aktiengesellschaft (NYSE:DB) is the least popular one with only 11 bullish hedge fund positions. PPL Corporation (NYSE:PPL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for PPL is 39.7. 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 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately PPL wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); PPL investors were disappointed as the stock returned 4% since Q2 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.