Did Hedge Funds Make The Right Call On Exelon Corporation (EXC) ?

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 Exelon Corporation (NYSE:EXC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Exelon Corporation (NYSE:EXC) has seen a decrease in hedge fund interest in recent months. Our calculations also showed that EXC 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. With all of this in mind we’re going to take a look at the latest hedge fund action surrounding Exelon Corporation (NYSE:EXC).

What does smart money think about Exelon Corporation (NYSE:EXC)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EXC over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EXC A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Cliff Asness’s AQR Capital Management has the number one position in Exelon Corporation (NYSE:EXC), worth close to $303.9 million, amounting to 0.5% of its total 13F portfolio. The second most bullish fund manager is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $228.7 million position; 0.9% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish comprise D. E. Shaw’s D E Shaw, Renaissance Technologies and Noam Gottesman’s GLG Partners. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Exelon Corporation (NYSE:EXC), around 9.5% of its 13F portfolio. Jet Capital Investors is also relatively very bullish on the stock, designating 7.69 percent of its 13F equity portfolio to EXC.

Seeing as Exelon Corporation (NYSE:EXC) has witnessed declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers who were dropping their positions entirely last quarter. Intriguingly, Zilvinas Mecelis’s Covalis Capital dropped the biggest investment of the 750 funds followed by Insider Monkey, valued at an estimated $89.7 million in stock. Jos Shaver’s fund, Electron Capital Partners, also cut its stock, about $82.2 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Exelon Corporation (NYSE:EXC) but similarly valued. We will take a look at Koninklijke Philips NV (NYSE:PHG), Westpac Banking Corporation (NYSE:WBK), Sprint Corporation (NYSE:S), and Lam Research Corporation (NASDAQ:LRCX). All of these stocks’ market caps match EXC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PHG 11 138924 2
WBK 9 32340 2
S 31 1437906 -4
LRCX 54 1780073 2
Average 26.25 847311 0.5

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 $847 million. That figure was $1130 million in EXC’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand Westpac Banking Corporation (NYSE:WBK) is the least popular one with only 9 bullish hedge fund positions. Exelon Corporation (NYSE:EXC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately EXC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on EXC were disappointed as the stock returned -0.3% during the same time period 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 many of these stocks already outperformed the market so far this year.

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