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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider NextEra Energy, Inc. (NYSE:NEE) for your portfolio? We'll look to this invaluable collective wisdom for the answer.
Is NextEra Energy, Inc. (NYSE:NEE) a good investment today? Money managers are buying. The number of long hedge fund positions inched up by 1 lately. Our calculations also showed that NEE isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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Cliff Asness of AQR Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now we're going to check out the fresh hedge fund action regarding NextEra Energy, Inc. (NYSE:NEE).
What have hedge funds been doing with NextEra Energy, Inc. (NYSE:NEE)?
At Q4's end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. By comparison, 37 hedge funds held shares or bullish call options in NEE a year ago. With hedgies' sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of NextEra Energy, Inc. (NYSE:NEE), with a stake worth $174.5 million reported as of the end of September. Trailing AQR Capital Management was OZ Management, which amassed a stake valued at $147.1 million. Adage Capital Management, D E Shaw, and Polaris Capital 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 Shelter Harbor Advisors allocated the biggest weight to NextEra Energy, Inc. (NYSE:NEE), around 17.66% of its 13F portfolio. Axel Capital Management is also relatively very bullish on the stock, earmarking 12.42 percent of its 13F equity portfolio to NEE.
As aggregate interest increased, some big names have been driving this bullishness. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, initiated the most outsized position in NextEra Energy, Inc. (NYSE:NEE). Voleon Capital had $18.9 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $5.8 million investment in the stock during the quarter. The other funds with brand new NEE positions are Bruce Kovner's Caxton Associates LP, Alec Litowitz and Ross Laser's Magnetar Capital, and Matthew Hulsizer's PEAK6 Capital Management.
Let's go over hedge fund activity in other stocks similar to NextEra Energy, Inc. (NYSE:NEE). These stocks are GlaxoSmithKline plc (NYSE:GSK), HDFC Bank Limited (NYSE:HDB), Linde plc (NYSE:LIN), and Royal Bank of Canada (NYSE:RY). This group of stocks' market values are closest to NEE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSK,26,2075772,-1 HDB,39,2768292,-2 LIN,47,2791217,1 RY,20,336905,1 Average,33,1993047,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $1993 million. That figure was $966 million in NEE's case. Linde plc (NYSE:LIN) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 20 bullish hedge fund positions. NextEra Energy, Inc. (NYSE:NEE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on NEE as the stock returned 0.1% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.