At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Consolidated Edison, Inc. (NYSE:ED) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Consolidated Edison, Inc. (NYSE:ED) was in 31 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. ED has seen an increase in hedge fund interest in recent months. There were 25 hedge funds in our database with ED positions at the end of the first quarter. Our calculations also showed that ED 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.
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 S&P 500 ETFs by more than 56 percentage points since March 2017 (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 stocks that are in our short portfolio.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind we're going to go over the latest hedge fund action encompassing Consolidated Edison, Inc. (NYSE:ED).
How are hedge funds trading Consolidated Edison, Inc. (NYSE:ED)?
At the end of the second quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ED over the last 20 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Consolidated Edison, Inc. (NYSE:ED), which was worth $247.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $147.2 million worth of shares. Lansdowne Partners, D E Shaw, and Millennium Management 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 Consolidated Edison, Inc. (NYSE:ED), around 4.23% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, dishing out 3.36 percent of its 13F equity portfolio to ED.
As one would reasonably expect, key money managers were leading the bulls' herd. Lansdowne Partners, managed by Alex Snow, assembled the most outsized position in Consolidated Edison, Inc. (NYSE:ED). Lansdowne Partners had $80.3 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital also initiated a $6.4 million position during the quarter. The following funds were also among the new ED investors: Steve Cohen's Point72 Asset Management, Matthew Hulsizer's PEAK6 Capital Management, and Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Consolidated Edison, Inc. (NYSE:ED) but similarly valued. We will take a look at Valero Energy Corporation (NYSE:VLO), Xilinx, Inc. (NASDAQ:XLNX), TransDigm Group Incorporated (NYSE:TDG), McCormick & Company, Incorporated (NYSE:MKC), Verisign, Inc. (NASDAQ:VRSN), Moderna, Inc. (NASDAQ:MRNA), and Motorola Solutions Inc (NYSE:MSI). All of these stocks' market caps are similar to ED's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VLO,39,157343,-6 XLNX,47,1054542,9 TDG,62,6065530,4 MKC,32,251773,1 VRSN,47,6245654,6 MRNA,37,788433,12 MSI,36,535822,2 Average,42.9,2157014,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.9 hedge funds with bullish positions and the average amount invested in these stocks was $2157 million. That figure was $714 million in ED's case. TransDigm Group Incorporated (NYSE:TDG) is the most popular stock in this table. On the other hand McCormick & Company, Incorporated (NYSE:MKC) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Consolidated Edison, Inc. (NYSE:ED) is even less popular than MKC. Our overall hedge fund sentiment score for ED is 38.3. 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. Hedge funds dodged a bullet by taking a bearish stance towards ED. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th but managed to beat the market by 17.6 percentage points. Unfortunately ED wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ED investors were disappointed as the stock returned 4.3% since the end of Q2 (through 9/14) 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 so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.