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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards WEC Energy Group, Inc. (NYSE:WEC).
Is WEC a good stock to buy now? Money managers were getting less optimistic. The number of bullish hedge fund positions retreated by 8 recently. WEC Energy Group, Inc. (NYSE:WEC) was in 22 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 30. Our calculations also showed that WEC 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.
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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset 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. Now we're going to take a peek at the new hedge fund action surrounding WEC Energy Group, Inc. (NYSE:WEC).
Do Hedge Funds Think WEC Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -27% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WEC over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in WEC Energy Group, Inc. (NYSE:WEC). D E Shaw has a $75.6 million position in the stock, comprising 0.1% of its 13F portfolio. On D E Shaw's heels is Cliff Asness of AQR Capital Management, with a $62.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers with similar optimism consist of Phill Gross and Robert Atchinson's Adage Capital Management, Israel Englander's Millennium Management and Dmitry Balyasny's Balyasny Asset Management. In terms of the portfolio weights assigned to each position Brasada Capital Management allocated the biggest weight to WEC Energy Group, Inc. (NYSE:WEC), around 0.79% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, earmarking 0.16 percent of its 13F equity portfolio to WEC.
Because WEC Energy Group, Inc. (NYSE:WEC) has faced bearish sentiment from the smart money, it's safe to say that there is a sect of hedge funds who were dropping their full holdings last quarter. It's worth mentioning that Greg Poole's Echo Street Capital Management said goodbye to the biggest position of the "upper crust" of funds watched by Insider Monkey, totaling close to $35.2 million in stock, and Renaissance Technologies was right behind this move, as the fund sold off about $19.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to WEC Energy Group, Inc. (NYSE:WEC). These stocks are The Bank of New York Mellon Corporation (NYSE:BK), Johnson Controls International plc (NYSE:JCI), Banco Bradesco SA (NYSE:BBD), Splunk Inc (NASDAQ:SPLK), IQVIA Holdings, Inc. (NYSE:IQV), CrowdStrike Holdings, Inc. (NASDAQ:CRWD), and Verisk Analytics, Inc. (NASDAQ:VRSK). This group of stocks' market values are similar to WEC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BK,48,3728518,0 JCI,24,892177,-4 BBD,20,213273,2 SPLK,44,1031842,-5 IQV,64,3333467,-2 CRWD,71,4300669,-7 VRSK,40,1112108,4 Average,44.4,2087436,-1.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 44.4 hedge funds with bullish positions and the average amount invested in these stocks was $2087 million. That figure was $238 million in WEC's case. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is the most popular stock in this table. On the other hand Banco Bradesco SA (NYSE:BBD) is the least popular one with only 20 bullish hedge fund positions. WEC Energy Group, Inc. (NYSE:WEC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WEC is 21. 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. 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and surpassed the market again by 15.8 percentage points. Unfortunately WEC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WEC investors were disappointed as the stock returned -4.9% since the end of September (through 12/14) 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 most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.