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Did Hedge Funds Make The Right Call On Dominion Energy Inc. (D) ?

How do you pick the next stock to invest in? One way would be to spend days 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 Dominion Energy Inc. (NYSE:D) and determine whether hedge funds had an edge regarding this stock.

Dominion Energy Inc. (NYSE:D) was in 34 hedge funds’ portfolios at the end of March. D has experienced a decrease in hedge fund interest of late. There were 37 hedge funds in our database with D holdings at the end of the previous quarter. Our calculations also showed that D 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.

At the moment there are plenty of tools stock market investors use to evaluate stocks. A pair of the most under-the-radar tools are hedge fund and insider trading activity. We have shown that, historically, those who follow the best picks of the top investment managers can outclass the S&P 500 by a superb amount (see the details here).

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 let’s take a look at the key hedge fund action surrounding Dominion Energy Inc. (NYSE:D).

What have hedge funds been doing with Dominion Energy Inc. (NYSE:D)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in D over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Dominion Energy Inc. (NYSE:D), with a stake worth $94.4 million reported as of the end of September. Trailing Renaissance Technologies was AQR Capital Management, which amassed a stake valued at $78.8 million. Adage Capital Management, D E Shaw, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Dominion Energy Inc. (NYSE:D), around 2.93% of its 13F portfolio. Beech Hill Partners is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to D.

Because Dominion Energy Inc. (NYSE:D) has witnessed falling interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of funds who were dropping their positions entirely by the end of the first quarter. Interestingly, Jos Shaver’s Electron Capital Partners dumped the largest investment of the 750 funds followed by Insider Monkey, worth an estimated $87.6 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund said goodbye to about $69.9 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Dominion Energy Inc. (NYSE:D). These stocks are Crown Castle International Corp. (REIT) (NYSE:CCI), Intuit Inc. (NASDAQ:INTU), S&P Global Inc. (NYSE:SPGI), and Prologis Inc (NYSE:PLD). This group of stocks’ market caps match D’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCI 40 1640829 2
INTU 54 1557455 0
SPGI 73 2586131 -3
PLD 40 450612 5
Average 51.75 1558757 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.75 hedge funds with bullish positions and the average amount invested in these stocks was $1559 million. That figure was $371 million in D’s case. S&P Global Inc. (NYSE:SPGI) is the most popular stock in this table. On the other hand Crown Castle International Corp. (REIT) (NYSE:CCI) is the least popular one with only 40 bullish hedge fund positions. Compared to these stocks Dominion Energy Inc. (NYSE:D) is even less popular than CCI. Hedge funds dodged a bullet by taking a bearish stance towards D. 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 D wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); D investors were disappointed as the stock returned 13.7% 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.