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 Enbridge Inc (NYSE:ENB) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Is Enbridge Inc (NYSE:ENB) a buy right now? Investors who are in the know were becoming more confident. The number of bullish hedge fund positions moved up by 3 lately. Enbridge Inc (NYSE:ENB) was in 28 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ENB 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 25 hedge funds in our database with ENB holdings at the end of March. Video: 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 S&P 500 ETFs by 58 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.
Jonathan Barrett of Luminus Management
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. With all of this in mind we're going to analyze the latest hedge fund action surrounding Enbridge Inc (NYSE:ENB).
Hedge fund activity in Enbridge Inc (NYSE:ENB)
At the end of the second quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in ENB a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Enbridge Inc (NYSE:ENB), which was worth $122.6 million at the end of the third quarter. On the second spot was Holocene Advisors which amassed $48 million worth of shares. Citadel Investment Group, Luminus Management, and Mountain Road Advisors 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 Mountain Road Advisors allocated the biggest weight to Enbridge Inc (NYSE:ENB), around 6.34% of its 13F portfolio. Heronetta Management is also relatively very bullish on the stock, dishing out 5.61 percent of its 13F equity portfolio to ENB.
Now, specific money managers have jumped into Enbridge Inc (NYSE:ENB) headfirst. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the biggest position in Enbridge Inc (NYSE:ENB). Luminus Management had $33.5 million invested in the company at the end of the quarter. Stuart J. Zimmer's Zimmer Partners also initiated a $13 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, Peter Muller's PDT Partners, and Murray Stahl's Horizon Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Enbridge Inc (NYSE:ENB) but similarly valued. These stocks are The TJX Companies, Inc. (NYSE:TJX), Target Corporation (NYSE:TGT), General Electric Company (NYSE:GE), NetEase, Inc (NASDAQ:NTES), Duke Energy Corporation (NYSE:DUK), Activision Blizzard, Inc. (NASDAQ:ATVI), and CME Group Inc (NASDAQ:CME). All of these stocks' market caps are closest to ENB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TJX,72,2347508,3 TGT,54,3159010,0 GE,57,3186232,-1 NTES,38,4594320,-1 DUK,33,906929,-2 ATVI,97,3564560,-4 CME,60,2336649,-2 Average,58.7,2870744,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 58.7 hedge funds with bullish positions and the average amount invested in these stocks was $2871 million. That figure was $380 million in ENB's case. Activision Blizzard, Inc. (NASDAQ:ATVI) is the most popular stock in this table. On the other hand Duke Energy Corporation (NYSE:DUK) is the least popular one with only 33 bullish hedge fund positions. Compared to these stocks Enbridge Inc (NYSE:ENB) is even less popular than DUK. Our overall hedge fund sentiment score for ENB is 34.1. 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 ENB. 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 21.3% in 2020 through September 25th but managed to beat the market by 17.7 percentage points. Unfortunately ENB wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); ENB investors were disappointed as the stock returned 0.4% since the end of Q2 (through 9/25) 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.