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NRG Energy Inc (NRG): Hedge Funds Taking Some Chips Off The Table

Abigail Fisher
·6 mins read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards NRG Energy Inc (NYSE:NRG).

Is NRG Energy Inc (NYSE:NRG) worth your attention right now? Hedge funds are in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 4 in recent months. Our calculations also showed that NRG isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 51 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_728376" align="aligncenter" width="393"] Jonathan Barrett of Luminus Management[/caption]

Jonathan Barrett Luminus Management
Jonathan Barrett Luminus Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the latest hedge fund action surrounding NRG Energy Inc (NYSE:NRG).

Hedge fund activity in NRG Energy Inc (NYSE:NRG)

Heading into the second quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NRG over the last 18 quarters. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in NRG Energy Inc (NYSE:NRG) was held by Citadel Investment Group, which reported holding $112.2 million worth of stock at the end of September. It was followed by GLG Partners with a $94.5 million position. Other investors bullish on the company included Renaissance Technologies, Permian Investment Partners, and Steadfast Capital Management. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to NRG Energy Inc (NYSE:NRG), around 22.24% of its 13F portfolio. SAYA Management is also relatively very bullish on the stock, earmarking 14.1 percent of its 13F equity portfolio to NRG.

Seeing as NRG Energy Inc (NYSE:NRG) has faced falling interest from the aggregate hedge fund industry, it's easy to see that there were a few money managers who sold off their entire stakes by the end of the third quarter. It's worth mentioning that Leon Cooperman's Omega Advisors said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, totaling close to $46.7 million in stock. George Soros's fund, Soros Fund Management, also dumped its stock, about $19.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as NRG Energy Inc (NYSE:NRG) but similarly valued. These stocks are Americold Realty Trust (NYSE:COLD), Mobile TeleSystems Public Joint Stock Company (NYSE:MBT), Mellanox Technologies, Ltd. (NASDAQ:MLNX), and Kilroy Realty Corp (NYSE:KRC). This group of stocks' market caps are similar to NRG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position COLD,25,275635,-1 MBT,9,377645,-4 MLNX,44,1873688,5 KRC,20,180763,2 Average,24.5,676933,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $677 million. That figure was $860 million in NRG's case. Mellanox Technologies, Ltd. (NASDAQ:MLNX) is the most popular stock in this table. On the other hand Mobile TeleSystems Public Joint Stock Company (NYSE:MBT) is the least popular one with only 9 bullish hedge fund positions. NRG Energy Inc (NYSE:NRG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on NRG as the stock returned 33.4% in Q2 (through the end of May) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

[company-follow-email id=1013871][/company-follow-email]

Disclosure: None. This article was originally published at Insider Monkey.

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