Hedge Funds Aren’t Crazy About Pattern Energy Group Inc (PEGI) Anymore

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Pattern Energy Group Inc (NASDAQ:PEGI) has experienced a decrease in activity from the world’s largest hedge funds of late. PEGI was in 15 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with PEGI positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as International Bancshares Corp (NASDAQ:IBOC), Bitauto Hldg Ltd (ADR) (NYSE:BITA), and RBC Bearings Incorporated (NASDAQ:ROLL) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Hedge fund activity in Pattern Energy Group Inc (NASDAQ:PEGI)

Heading into the fourth quarter of 2016, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 12% decrease from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in PEGI at the beginning of this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Phill Gross and Robert Atchinson’s Adage Capital Management has the largest position in Pattern Energy Group Inc (NASDAQ:PEGI), worth close to $47.2 million. On Adage Capital Management’s heels is Ecofin Ltd, led by Bernard Lambilliotte, holding a $38 million position; 9.8% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise Israel Englander’s Millennium Management, Dmitry Balyasny’s Balyasny Asset Management and Philip Hempleman’s Ardsley Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that got rid of their entire stakes in the stock during the third quarter. It’s worth mentioning that Michael R. Weisberg’s Crestwood Capital Management got rid of the largest investment of the 700 funds studied by Insider Monkey, comprising close to $9.7 million in stock, and Jos Shaver’s Electron Capital Partners was right behind this move, as the fund cut about $9.1 million worth of shares.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Pattern Energy Group Inc (NASDAQ:PEGI) but similarly valued. These stocks are International Bancshares Corp (NASDAQ:IBOC), Bitauto Hldg Ltd (ADR) (NYSE:BITA), RBC Bearings Incorporated (NASDAQ:ROLL), and Fortress Investment Group LLC (NYSE:FIG). This group of stocks’ market valuations are closest to PEGI’s market valuation.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $165 million in PEGI’s case. Fortress Investment Group LLC (NYSE:FIG) is the most popular stock in this table. On the other hand International Bancshares Corp (NASDAQ:IBOC) is the least popular one with only 10 bullish hedge fund positions. Pattern Energy Group Inc (NASDAQ:PEGI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard FIG might be a better candidate to consider taking a long position in.

Disclosure: None