Did Hedge Funds Make The Right Call On Eversource Energy (ES) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Eversource Energy (NYSE:ES) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Eversource Energy (NYSE:ES) was in 26 hedge funds’ portfolios at the end of the first quarter of 2020. ES investors should be aware of an increase in hedge fund sentiment lately. There were 24 hedge funds in our database with ES holdings at the end of the previous quarter. Our calculations also showed that ES 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.

To most market participants, hedge funds are perceived as unimportant, old financial tools of yesteryear. While there are more than 8000 funds trading at the moment, Our experts choose to focus on the bigwigs of this club, about 850 funds. Most estimates calculate that this group of people oversee bulk of the smart money’s total capital, and by shadowing their inimitable picks, Insider Monkey has revealed a few investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer 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 we’re going to go over the recent hedge fund action regarding Eversource Energy (NYSE:ES).

How are hedge funds trading Eversource Energy (NYSE:ES)?

At the end of the first quarter, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ES over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

The largest stake in Eversource Energy (NYSE:ES) was held by Zimmer Partners, which reported holding $187.7 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $69.8 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Eversource Energy (NYSE:ES), around 4.16% of its 13F portfolio. Sustainable Insight Capital Management is also relatively very bullish on the stock, setting aside 1.65 percent of its 13F equity portfolio to ES.

Now, some big names have jumped into Eversource Energy (NYSE:ES) headfirst. ExodusPoint Capital, managed by Michael Gelband, established the most outsized position in Eversource Energy (NYSE:ES). ExodusPoint Capital had $6.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $3.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Ray Dalio’s Bridgewater Associates.

Let’s also examine hedge fund activity in other stocks similar to Eversource Energy (NYSE:ES). These stocks are Canadian Imperial Bank of Commerce (NYSE:CM), Brown-Forman Corporation (NYSE:BF), Cognizant Technology Solutions Corp (NASDAQ:CTSH), and The Travelers Companies Inc (NYSE:TRV). This group of stocks’ market caps resemble ES’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CM 10 144510 -4
BF 28 482273 5
CTSH 38 2225496 -5
TRV 29 481539 -10
Average 26.25 833455 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $833 million. That figure was $461 million in ES’s case. Cognizant Technology Solutions Corp (NASDAQ:CTSH) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 10 bullish hedge fund positions. Eversource Energy (NYSE:ES) 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 ES wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ES investors were disappointed as the stock returned 7.2% 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 in 2020.

Follow Energysolutions Inc. (NYSE:ES)

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