We can judge whether Consolidated Edison, Inc. (NYSE:ED) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Hedge fund interest in Consolidated Edison, Inc. (NYSE:ED) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), Atlassian Corporation Plc (NASDAQ:TEAM), and Sirius XM Holdings Inc (NASDAQ:SIRI) to gather more data points.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We're going to take a peek at the key hedge fund action encompassing Consolidated Edison, Inc. (NYSE:ED).
How are hedge funds trading Consolidated Edison, Inc. (NYSE:ED)?
Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in ED a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, AQR Capital Management held the most valuable stake in Consolidated Edison, Inc. (NYSE:ED), which was worth $582.4 million at the end of the first quarter. On the second spot was Renaissance Technologies which amassed $270.2 million worth of shares. Moreover, Citadel Investment Group, D E Shaw, and Two Sigma Advisors were also bullish on Consolidated Edison, Inc. (NYSE:ED), allocating a large percentage of their portfolios to this stock.
Because Consolidated Edison, Inc. (NYSE:ED) has faced a decline in interest from the smart money, we can see that there was a specific group of funds who were dropping their entire stakes heading into Q3. At the top of the heap, Stuart J. Zimmer's Zimmer Partners dropped the biggest investment of the 700 funds followed by Insider Monkey, valued at close to $55.4 million in stock. Phill Gross and Robert Atchinson's fund, Adage Capital Management, also cut its stock, about $29.5 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Consolidated Edison, Inc. (NYSE:ED) but similarly valued. These stocks are Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK), Atlassian Corporation Plc (NASDAQ:TEAM), Sirius XM Holdings Inc (NASDAQ:SIRI), and PPG Industries, Inc. (NYSE:PPG). This group of stocks' market values are similar to ED's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TLK,9,134035,3 TEAM,36,1618697,2 SIRI,32,1585774,11 PPG,23,926417,4 Average,25,1066231,5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1066 million. That figure was $1183 million in ED's case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 9 bullish hedge fund positions. Consolidated Edison, Inc. (NYSE:ED) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on ED, though not to the same extent, as the stock returned 1.4% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.