Did Hedge Funds Make The Right Call On CMS Energy Corporation (CMS) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded CMS Energy Corporation (NYSE:CMS) and determine whether the smart money was really smart about this stock.

CMS Energy Corporation (NYSE:CMS) was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. CMS investors should pay attention to a decrease in enthusiasm from smart money in recent months. There were 30 hedge funds in our database with CMS positions at the end of the previous quarter. Our calculations also showed that CMS 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.


Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to review the fresh hedge fund action encompassing CMS Energy Corporation (NYSE:CMS).

What does smart money think about CMS Energy Corporation (NYSE:CMS)?

At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CMS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CMS A Good Stock To Buy?

The largest stake in CMS Energy Corporation (NYSE:CMS) was held by Renaissance Technologies, which reported holding $103.3 million worth of stock at the end of September. It was followed by GQG Partners with a $87.1 million position. Other investors bullish on the company included Two Sigma Advisors, D E Shaw, and Millennium Management. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to CMS Energy Corporation (NYSE:CMS), around 1.94% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, dishing out 1.9 percent of its 13F equity portfolio to CMS.

Seeing as CMS Energy Corporation (NYSE:CMS) has experienced falling interest from hedge fund managers, we can see that there lies a certain “tier” of hedge funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Peter J. Hark’s Shelter Harbor Advisors cut the largest stake of all the hedgies monitored by Insider Monkey, comprising about $11 million in stock, and Greg Poole’s Echo Street Capital Management was right behind this move, as the fund sold off about $9.3 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as CMS Energy Corporation (NYSE:CMS) but similarly valued. These stocks are Parker-Hannifin Corporation (NYSE:PH), DocuSign, Inc. (NASDAQ:DOCU), Mettler-Toledo International Inc. (NYSE:MTD), and LyondellBasell Industries NV (NYSE:LYB). This group of stocks’ market values are closest to CMS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PH 32 889095 -7
DOCU 47 1082768 14
MTD 31 616788 2
LYB 35 474610 -5
Average 36.25 765815 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.25 hedge funds with bullish positions and the average amount invested in these stocks was $766 million. That figure was $421 million in CMS’s case. DocuSign, Inc. (NASDAQ:DOCU) is the most popular stock in this table. On the other hand Mettler-Toledo International Inc. (NYSE:MTD) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks CMS Energy Corporation (NYSE:CMS) is even less popular than MTD. Hedge funds dodged a bullet by taking a bearish stance towards CMS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately CMS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); CMS investors were disappointed as the stock returned 0.2% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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