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Do Hedge Funds Love Clearway Energy, Inc. (CWEN)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Clearway Energy, Inc. (NYSE:CWEN).

Is Clearway Energy, Inc. (NYSE:CWEN) an excellent investment now? Hedge funds are reducing their bets on the stock. The number of long hedge fund positions went down by 6 lately. Our calculations also showed that CWEN 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). CWEN was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 23 hedge funds in our database with CWEN positions at the end of the previous quarter.

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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the fresh hedge fund action surrounding Clearway Energy, Inc. (NYSE:CWEN).

What does smart money think about Clearway Energy, Inc. (NYSE:CWEN)?

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -26% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CWEN over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Clearway Energy, Inc. (NYSE:CWEN) was held by Renaissance Technologies, which reported holding $61.8 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $37.6 million position. Other investors bullish on the company included Southpoint Capital Advisors, Mountaineer Partners Management, and Governors Lane. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to Clearway Energy, Inc. (NYSE:CWEN), around 20.46% of its 13F portfolio. Alta Fundamental Advisers is also relatively very bullish on the stock, designating 11.57 percent of its 13F equity portfolio to CWEN.

Judging by the fact that Clearway Energy, Inc. (NYSE:CWEN) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds that decided to sell off their positions entirely by the end of the first quarter. Interestingly, Stephen C. Freidheim’s Cyrus Capital Partners dumped the biggest stake of the 750 funds monitored by Insider Monkey, totaling close to $49 million in stock, and Shawn Bergerson and Martin Kalish’s Waterstone Capital Management was right behind this move, as the fund dropped about $9.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 6 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Clearway Energy, Inc. (NYSE:CWEN). We will take a look at Nomad Foods Limited (NYSE:NOMD), Exponent, Inc. (NASDAQ:EXPO), Skechers USA Inc (NYSE:SKX), and SYNNEX Corporation (NYSE:SNX). This group of stocks’ market valuations are similar to CWEN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOMD 34 444046 -1
EXPO 17 121456 0
SKX 26 485573 -4
SNX 24 263748 2
Average 25.25 328706 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $170 million in CWEN’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Exponent, Inc. (NASDAQ:EXPO) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Clearway Energy, Inc. (NYSE:CWEN) is even less popular than EXPO. Hedge funds clearly dropped the ball on CWEN as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on CWEN as the stock returned 32.9% so far in the second quarter and outperformed the market by an even larger margin.

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