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Did Hedge Funds Make The Right Call On Clearway Energy, Inc. (CWEN) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Clearway Energy, Inc. (NYSE:CWEN) based on that data and determine whether they were really smart about the stock.

Clearway Energy, Inc. (NYSE:CWEN) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that CWEN 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 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 S&P 500 ETFs by 58 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 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.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a glance at the key hedge fund action regarding Clearway Energy, Inc. (NYSE:CWEN).

Hedge fund activity in Clearway Energy, Inc. (NYSE:CWEN)

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the fourth quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in CWEN a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Clearway Energy, Inc. (NYSE:CWEN), worth close to $61.8 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is Renaissance Technologies, with a $37.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass John Smith Clark’s Southpoint Capital Advisors, Mark Lee’s Mountaineer Partners Management and Isaac Corre’s Governors Lane. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Clearway Energy, Inc. (NYSE:CWEN), around 20.46% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, designating 11.57 percent of its 13F equity portfolio to CWEN.

Seeing as Clearway Energy, Inc. (NYSE:CWEN) has faced bearish sentiment from the smart money, logic holds that there was a specific group of funds who were dropping their entire stakes in the first quarter. At the top of the heap, Stephen C. Freidheim’s Cyrus Capital Partners dumped the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $49 million in stock, and Shawn Bergerson and Martin Kalish’s Waterstone Capital Management was right behind this move, as the fund sold off about $9.2 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 6 funds in the first quarter.

Let’s go over hedge fund activity in other stocks similar to Clearway Energy, Inc. (NYSE:CWEN). These stocks are Nomad Foods Limited (NYSE:NOMD), Exponent, Inc. (NASDAQ:EXPO), Skechers USA Inc (NYSE:SKX), and SYNNEX Corporation (NYSE:SNX). This group of stocks’ market values match CWEN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOMD 34 444046 -1
EXPO 17 121456 0
SKX 26 485573 -4
SNX 24 263748 2
Average 25.25 328706 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $170 million in CWEN’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Clearway Energy, Inc. (NYSE:CWEN) is even less popular than EXPO. 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 18.6% in 2020 through July 27th but managed to beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on CWEN, though not to the same extent, as the stock returned 28.5% since the end of March and outperformed the market as well.

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