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Did Hedge Funds Make The Right Call On Evergy, Inc. (EVRG) ?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtEvergy, Inc. (NYSE:EVRG) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Evergy, Inc. (NYSE:EVRG) has seen an increase in enthusiasm from smart money in recent months. Our calculations also showed that EVRG 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind let’s take a gander at the new hedge fund action regarding Evergy, Inc. (NYSE:EVRG).

Hedge fund activity in Evergy, Inc. (NYSE:EVRG)

At Q1’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in EVRG over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is EVRG A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Evergy, Inc. (NYSE:EVRG), which was worth $404.5 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $53 million worth of shares. Citadel Investment Group, AQR Capital Management, and Millennium Management 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 Blackstart Capital allocated the biggest weight to Evergy, Inc. (NYSE:EVRG), around 11.83% of its 13F portfolio. Yaupon Capital is also relatively very bullish on the stock, designating 7.24 percent of its 13F equity portfolio to EVRG.

Now, some big names were breaking ground themselves. Blackstart Capital, managed by Brian Olson, Baehyun Sung, and Jamie Waters, created the most valuable position in Evergy, Inc. (NYSE:EVRG). Blackstart Capital had $6.3 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs’s Wexford Capital also made a $6.1 million investment in the stock during the quarter. The other funds with brand new EVRG positions are George Soros’s Soros Fund Management, Steve Pattyn’s Yaupon Capital, and Sara Nainzadeh’s Centenus Global Management.

Let’s check out hedge fund activity in other stocks similar to Evergy, Inc. (NYSE:EVRG). We will take a look at D.R. Horton, Inc. (NYSE:DHI), Western Digital Corporation (NASDAQ:WDC), Extra Space Storage, Inc. (NYSE:EXR), and Energy Transfer L.P. (NYSE:ET). This group of stocks’ market caps resemble EVRG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DHI 65 1265515 14
WDC 45 560147 -4
EXR 16 186130 -12
ET 33 421900 -3
Average 39.75 608423 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.75 hedge funds with bullish positions and the average amount invested in these stocks was $608 million. That figure was $757 million in EVRG’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand Extra Space Storage, Inc. (NYSE:EXR) is the least popular one with only 16 bullish hedge fund positions. Evergy, Inc. (NYSE:EVRG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately EVRG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EVRG investors were disappointed as the stock returned 8.6% 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 in 2020.

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