It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Eversource Energy (NYSE:ES).
Is Eversource Energy (NYSE:ES) the right investment to pursue these days? Investors who are in the know are becoming less confident. The number of long hedge fund bets dropped by 4 in recent months. Our calculations also showed that ES isn't among the 30 most popular stocks among hedge funds. ES was in 16 hedge funds' portfolios at the end of the first quarter of 2019. There were 20 hedge funds in our database with ES holdings at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We're going to go over the fresh hedge fund action encompassing Eversource Energy (NYSE:ES).
What have hedge funds been doing with Eversource Energy (NYSE:ES)?
At Q1's end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in ES a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons's Renaissance Technologies has the most valuable position in Eversource Energy (NYSE:ES), worth close to $225.6 million, corresponding to 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, led by Cliff Asness, holding a $78.3 million position; 0.1% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions consist of Stuart J. Zimmer's Zimmer Partners, Mario Gabelli's GAMCO Investors and Michael Gelband's ExodusPoint Capital.
Judging by the fact that Eversource Energy (NYSE:ES) has faced bearish sentiment from the smart money, logic holds that there lies a certain "tier" of fund managers who were dropping their positions entirely in the third quarter. Interestingly, Phill Gross and Robert Atchinson's Adage Capital Management dumped the largest position of the "upper crust" of funds watched by Insider Monkey, comprising about $63.6 million in stock. Clint Carlson's fund, Carlson Capital, also cut its stock, about $41 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds in the third quarter.
Let's now take a look at hedge fund activity in other stocks similar to Eversource Energy (NYSE:ES). These stocks are SBA Communications Corporation (NASDAQ:SBAC), McKesson Corporation (NYSE:MCK), Realty Income Corporation (NYSE:O), and Concho Resources Inc. (NYSE:CXO). This group of stocks' market valuations resemble ES's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SBAC,29,1658761,-3 MCK,32,1989051,-12 O,15,175737,-3 CXO,26,530505,-9 Average,25.5,1088514,-6.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $1089 million. That figure was $403 million in ES's case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 15 bullish hedge fund positions. Eversource Energy (NYSE:ES) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on ES as the stock returned 9.6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.