Are Hedge Funds Going To Get Burned By Companhia Energetica de Minas Gerais (CIG)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Companhia Energetica de Minas Gerais (NYSE:CIG) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Companhia Energetica de Minas Gerais (NYSE:CIG) investors should pay attention to an increase in support from the world’s most elite money managers lately. Our calculations also showed that CIG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the key hedge fund action regarding Companhia Energetica de Minas Gerais (NYSE:CIG).

What does smart money think about Companhia Energetica de Minas Gerais (NYSE:CIG)?

Heading into the first quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in CIG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Companhia Energetica de Minas Gerais (NYSE:CIG) was held by AQR Capital Management, which reported holding $25.2 million worth of stock at the end of September. It was followed by Millennium Management with a $10.2 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position AQR Capital Management allocated the biggest weight to Companhia Energetica de Minas Gerais (NYSE:CIG), around 0.03% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to CIG.

As industrywide interest jumped, key hedge funds have jumped into Companhia Energetica de Minas Gerais (NYSE:CIG) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the biggest position in Companhia Energetica de Minas Gerais (NYSE:CIG). Marshall Wace LLP had $0.1 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also made a $0.1 million investment in the stock during the quarter. The only other fund with a brand new CIG position is Dmitry Balyasny’s Balyasny Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Companhia Energetica de Minas Gerais (NYSE:CIG) but similarly valued. These stocks are Crane Co. (NYSE:CR), Alliance Data Systems Corporation (NYSE:ADS), Kemper Corporation (NYSE:KMPR), and First Horizon National Corporation (NYSE:FHN). All of these stocks’ market caps are closest to CIG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CR 23 359867 0
ADS 45 1320134 6
KMPR 20 94921 -1
FHN 27 246677 -7
Average 28.75 505400 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $505 million. That figure was $58 million in CIG’s case. Alliance Data Systems Corporation (NYSE:ADS) is the most popular stock in this table. On the other hand Kemper Corporation (NYSE:KMPR) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Companhia Energetica de Minas Gerais (NYSE:CIG) is even less popular than KMPR. Hedge funds dodged a bullet by taking a bearish stance towards CIG. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but managed to beat the market by 4.2 percentage points. Unfortunately CIG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CIG investors were disappointed as the stock returned -52.7% 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 most of these stocks already outperformed the market so far in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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