In this article we will analyze whether Companhia Paranaense de Energia (NYSE:ELP) 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 by double digits annually.
Companhia Paranaense de Energia (NYSE:ELP) has seen a decrease in enthusiasm from smart money recently. Companhia Paranaense de Energia (NYSE:ELP) was in 6 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. Our calculations also showed that ELP isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.
Minhua Zhang of Weld Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we're going to take a glance at the latest hedge fund action encompassing Companhia Paranaense de Energia (NYSE:ELP).
How are hedge funds trading Companhia Paranaense de Energia (NYSE:ELP)?
At third quarter's end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ELP over the last 21 quarters. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Arrowstreet Capital held the most valuable stake in Companhia Paranaense de Energia (NYSE:ELP), which was worth $13.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $4.8 million worth of shares. Two Sigma Advisors, Marshall Wace LLP, and AQR 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 Arrowstreet Capital allocated the biggest weight to Companhia Paranaense de Energia (NYSE:ELP), around 0.02% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, setting aside 0.01 percent of its 13F equity portfolio to ELP.
Judging by the fact that Companhia Paranaense de Energia (NYSE:ELP) has witnessed a decline in interest from the smart money, it's easy to see that there were a few hedgies that slashed their entire stakes last quarter. Intriguingly, Israel Englander's Millennium Management dumped the largest stake of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $5 million in stock. D. E. Shaw's fund, D E Shaw, also sold off its stock, about $3.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 6 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Companhia Paranaense de Energia (NYSE:ELP) but similarly valued. These stocks are nVent Electric plc (NYSE:NVT), MGIC Investment Corporation (NYSE:MTG), Qurate Retail, Inc. (NASDAQ:QRTEA), M.D.C. Holdings, Inc. (NYSE:MDC), Braskem SA (NYSE:BAK), Mimecast Limited (NASDAQ:MIME), and Nektar Therapeutics (NASDAQ:NKTR). This group of stocks' market values resemble ELP's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVT,34,374896,7 MTG,41,314368,1 QRTEA,41,608143,-2 MDC,25,135497,5 BAK,8,29374,1 MIME,25,169600,-9 NKTR,21,189419,-5 Average,27.9,260185,-0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $22 million in ELP's case. MGIC Investment Corporation (NYSE:MTG) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Companhia Paranaense de Energia (NYSE:ELP) is even less popular than BAK. Our overall hedge fund sentiment score for ELP is 14. 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 clearly dropped the ball on ELP as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on ELP as the stock returned 17.3% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.