Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged during the first quarter. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 40% and 25% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the first 5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
NiSource Inc. (NYSE:NI) has experienced an increase in activity from the world's largest hedge funds recently. Our calculations also showed that ni isn't among the 30 most popular stocks among hedge funds.
Why do we pay any attention at all to hedge fund sentiment? 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.
We're going to analyze the latest hedge fund action regarding NiSource Inc. (NYSE:NI).
Hedge fund activity in NiSource Inc. (NYSE:NI)
Heading into the second quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the fourth quarter of 2018. On the other hand, there were a total of 15 hedge funds with a bullish position in NI a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
Among these funds, Zimmer Partners held the most valuable stake in NiSource Inc. (NYSE:NI), which was worth $502.6 million at the end of the first quarter. On the second spot was Citadel Investment Group which amassed $42.1 million worth of shares. Moreover, Millennium Management, Blackstart Capital, and Luminus Management were also bullish on NiSource Inc. (NYSE:NI), allocating a large percentage of their portfolios to this stock.
Now, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, assembled the biggest position in NiSource Inc. (NYSE:NI). Balyasny Asset Management had $5.2 million invested in the company at the end of the quarter. Peter J. Hark's Shelter Harbor Advisors also made a $4.3 million investment in the stock during the quarter. The other funds with brand new NI positions are Paul Marshall and Ian Wace's Marshall Wace LLP, Noam Gottesman's GLG Partners, and Minhua Zhang's Weld Capital Management.
Let's also examine hedge fund activity in other stocks similar to NiSource Inc. (NYSE:NI). These stocks are Cboe Global Markets, Inc. (BATS:CBOE), Cenovus Energy Inc (NYSE:CVE), Domino's Pizza, Inc. (NYSE:DPZ), and Micro Focus International plc (NYSE:MFGP). This group of stocks' market values are similar to NI's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBOE,22,881706,-2 CVE,23,454911,3 DPZ,32,1861496,0 MFGP,4,37735,-4 Average,20.25,808962,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $809 million. That figure was $691 million in NI's case. Domino's Pizza, Inc. (NYSE:DPZ) is the most popular stock in this table. On the other hand Micro Focus International plc (NYSE:MFGP) is the least popular one with only 4 bullish hedge fund positions. NiSource Inc. (NYSE:NI) 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 NI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NI investors were disappointed as the stock returned -3.2% 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.