Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Is CenterPoint Energy, Inc. (NYSE:CNP) a buy right now? The best stock pickers are selling. The number of bullish hedge fund bets fell by 5 lately. Our calculations also showed that CNP isn't among the 30 most popular stocks among hedge funds. CNP was in 29 hedge funds' portfolios at the end of June. There were 34 hedge funds in our database with CNP positions at the end of the previous quarter.
According to most shareholders, hedge funds are perceived as underperforming, outdated financial vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers look at the leaders of this group, approximately 750 funds. These hedge fund managers orchestrate most of the hedge fund industry's total asset base, and by keeping track of their inimitable investments, Insider Monkey has spotted numerous investment strategies that have historically outperformed the market. Insider Monkey's flagship hedge fund strategy outpaced the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the key hedge fund action surrounding CenterPoint Energy, Inc. (NYSE:CNP).
How have hedgies been trading CenterPoint Energy, Inc. (NYSE:CNP)?
At the end of the second quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the first quarter of 2019. By comparison, 21 hedge funds held shares or bullish call options in CNP a year ago. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in CenterPoint Energy, Inc. (NYSE:CNP), which was worth $206.7 million at the end of the second quarter. On the second spot was Zimmer Partners which amassed $138.4 million worth of shares. Moreover, Adage Capital Management, Renaissance Technologies, and Millennium Management were also bullish on CenterPoint Energy, Inc. (NYSE:CNP), allocating a large percentage of their portfolios to this stock.
Because CenterPoint Energy, Inc. (NYSE:CNP) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few funds that decided to sell off their full holdings heading into Q3. Interestingly, Matthew Tewksbury's Stevens Capital Management said goodbye to the largest investment of the 750 funds monitored by Insider Monkey, worth about $9.1 million in stock. Jeffrey Talpins's fund, Element Capital Management, also sold off its stock, about $1.4 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q3.
Let's also examine hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). We will take a look at Sea Limited (NYSE:SE), CarMax Inc (NYSE:KMX), Okta, Inc. (NASDAQ:OKTA), and Apollo Global Management, Inc. (NYSE:APO). All of these stocks' market caps are similar to CNP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SE,60,3337823,10 KMX,39,2155887,10 OKTA,39,1259179,-4 APO,23,1702873,5 Average,40.25,2113941,5.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $2114 million. That figure was $1051 million in CNP's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Apollo Global Management, Inc. (NYSE:APO) is the least popular one with only 23 bullish hedge fund positions. CenterPoint Energy, Inc. (NYSE:CNP) 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 (view the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on CNP as the stock returned 6.5% during the same time frame and outperformed the market by an even larger margin. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.