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Did Hedge Funds Make The Right Call On Nextera Energy Partners LP (NEP) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Nextera Energy Partners LP (NYSE:NEP) and determine whether hedge funds skillfully traded this stock.

Is Nextera Energy Partners LP (NYSE:NEP) a buy right now? Money managers were getting more bullish. The number of bullish hedge fund bets increased by 4 recently. Our calculations also showed that NEP 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). NEP was in 21 hedge funds’ portfolios at the end of March. There were 17 hedge funds in our database with NEP positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Bernard Lambilliotte - Ecofin

Bernard Lambilliotte of Ecofin Ltd

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to check out the fresh hedge fund action regarding Nextera Energy Partners LP (NYSE:NEP).

How have hedgies been trading Nextera Energy Partners LP (NYSE:NEP)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards NEP over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Electron Capital Partners was the largest shareholder of Nextera Energy Partners LP (NYSE:NEP), with a stake worth $29.4 million reported as of the end of September. Trailing Electron Capital Partners was Yaupon Capital, which amassed a stake valued at $7.6 million. Arrowstreet Capital, Ecofin Ltd, and PEAK6 Capital 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 Yaupon Capital allocated the biggest weight to Nextera Energy Partners LP (NYSE:NEP), around 12.05% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, designating 7.69 percent of its 13F equity portfolio to NEP.

Consequently, key money managers were leading the bulls’ herd. Arosa Capital Management, managed by Till Bechtolsheimer, initiated the biggest position in Nextera Energy Partners LP (NYSE:NEP). Arosa Capital Management had $5.4 million invested in the company at the end of the quarter. John Bader’s Halcyon Asset Management also made a $4 million investment in the stock during the quarter. The other funds with brand new NEP positions are Matthew Hulsizer’s PEAK6 Capital Management, Greg Eisner’s Engineers Gate Manager, and D. E. Shaw’s D E Shaw.

Let’s check out hedge fund activity in other stocks similar to Nextera Energy Partners LP (NYSE:NEP). These stocks are Agree Realty Corporation (NYSE:ADC), Brunswick Corporation (NYSE:BC), CVB Financial Corp. (NASDAQ:CVBF), and Ardagh Group S.A. (NYSE:ARD). All of these stocks’ market caps are similar to NEP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ADC 21 310469 3
BC 23 411459 -13
CVBF 8 40046 -6
ARD 8 48967 -1
Average 15 202735 -4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $203 million. That figure was $97 million in NEP’s case. Brunswick Corporation (NYSE:BC) is the most popular stock in this table. On the other hand CVB Financial Corp. (NASDAQ:CVBF) is the least popular one with only 8 bullish hedge fund positions. Nextera Energy Partners LP (NYSE:NEP) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on NEP as the stock returned 41.7% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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