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Were Hedge Funds Right About Flocking Into Public Service Enterprise Group Incorporated (PEG)?

Abigail Fisher

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Public Service Enterprise Group Incorporated (NYSE:PEG).

Is Public Service Enterprise Group Incorporated (NYSE:PEG) an outstanding stock to buy now? Investors who are in the know are getting more optimistic. The number of long hedge fund positions inched up by 3 lately. Our calculations also showed that PEG isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Steve Cohen SAC CAPITAL ADVISORS

We're going to take a glance at the fresh hedge fund action encompassing Public Service Enterprise Group Incorporated (NYSE:PEG).

How are hedge funds trading Public Service Enterprise Group Incorporated (NYSE:PEG)?

Heading into the first quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PEG over the last 14 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

PEG_mar2019

Among these funds, AQR Capital Management held the most valuable stake in Public Service Enterprise Group Incorporated (NYSE:PEG), which was worth $244.2 million at the end of the third quarter. On the second spot was Millennium Management which amassed $164.1 million worth of shares. Moreover, Adage Capital Management, Zimmer Partners, and Renaissance Technologies were also bullish on Public Service Enterprise Group Incorporated (NYSE:PEG), allocating a large percentage of their portfolios to this stock.

Consequently, key money managers have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, created the most valuable position in Public Service Enterprise Group Incorporated (NYSE:PEG). ExodusPoint Capital had $20.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $11.8 million investment in the stock during the quarter. The other funds with brand new PEG positions are Steve Cohen's Point72 Asset Management, Ken Griffin's Citadel Investment Group, and Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners.

Let's check out hedge fund activity in other stocks similar to Public Service Enterprise Group Incorporated (NYSE:PEG). These stocks are Takeda Pharmaceutical Company Limited (NYSE:TAK), Southwest Airlines Co. (NYSE:LUV), Welltower Inc. (NYSE:WELL), and Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK). This group of stocks' market caps are similar to PEG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TAK,10,97263,10 LUV,40,3809426,-1 WELL,17,483630,-1 TLK,6,111079,2 Average,18.25,1125350,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $1125 million. That figure was $1077 million in PEG's case. Southwest Airlines Co. (NYSE:LUV) is the most popular stock in this table. On the other hand Perusahaan Perseroan (Persero) PT Telekomunikasi Indonesia Tbk (NYSE:TLK) is the least popular one with only 6 bullish hedge fund positions. Public Service Enterprise Group Incorporated (NYSE:PEG) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on PEG, though not to the same extent, as the stock returned 15.7% and outperformed the market as well.

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

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