Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by more than 6 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Exelon Corporation (NYSE:EXC) from the perspective of those elite funds.
Hedge fund interest in Exelon Corporation (NYSE:EXC) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare EXC to other stocks including Allergan plc (NYSE:AGN), Tesla Inc. (NASDAQ:TSLA), and Zoetis Inc (NYSE:ZTS) to get a better sense of its popularity.
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 has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="473"] Noam Gottesman, GLG Partners[/caption]
We're going to review the fresh hedge fund action encompassing Exelon Corporation (NYSE:EXC).
What does the smart money think about Exelon Corporation (NYSE:EXC)?
At the end of the first quarter, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in EXC a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Exelon Corporation (NYSE:EXC) was held by AQR Capital Management, which reported holding $1216.7 million worth of stock at the end of March. It was followed by GLG Partners with a $265.2 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and Electron Capital Partners.
Seeing as Exelon Corporation (NYSE:EXC) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds that elected to cut their entire stakes heading into Q3. Intriguingly, Jeffrey Talpins's Element Capital Management dropped the biggest stake of all the hedgies watched by Insider Monkey, valued at an estimated $2.9 million in call options. D. E. Shaw's fund, D E Shaw, also dropped its call options, about $1.8 million worth. These transactions are interesting, 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 similar to Exelon Corporation (NYSE:EXC). These stocks are Allergan plc (NYSE:AGN), Tesla Inc. (NASDAQ:TSLA), Zoetis Inc (NYSE:ZTS), and The Bank of New York Mellon Corporation (NYSE:BK). This group of stocks' market caps match EXC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGN,53,3989971,-8 TSLA,32,1066853,-15 ZTS,37,2348595,-8 BK,36,5272376,11 Average,39.5,3169449,-5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 39.5 hedge funds with bullish positions and the average amount invested in these stocks was $3169 million. That figure was $2513 million in EXC's case. Allergan plc (NYSE:AGN) is the most popular stock in this table. On the other hand Tesla Inc. (NASDAQ:TSLA) is the least popular one with only 32 bullish hedge fund positions. Exelon Corporation (NYSE:EXC) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately EXC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); EXC investors were disappointed as the stock returned -3.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.