Do Hedge Funds Love Companhia Paranaense de Energia – COPEL (ELP)?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Companhia Paranaense de Energia – COPEL (NYSE:ELP).

Companhia Paranaense de Energia – COPEL (NYSE:ELP) was in 9 hedge funds’ portfolios at the end of the second quarter of 2019. ELP has seen a decrease in activity from the world’s largest hedge funds of late. There were 10 hedge funds in our database with ELP holdings at the end of the previous quarter. Our calculations also showed that ELP isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action regarding Companhia Paranaense de Energia – COPEL (NYSE:ELP).

What does smart money think about Companhia Paranaense de Energia – COPEL (NYSE:ELP)?

At Q2’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the first quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in ELP a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

No of Hedge Funds with ELP Positions

According to Insider Monkey’s hedge fund database, D. E. Shaw’s D E Shaw has the number one position in Companhia Paranaense de Energia – COPEL (NYSE:ELP), worth close to $26.9 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $16.6 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish include Renaissance Technologies, Noam Gottesman’s GLG Partners and Israel Englander’s Millennium Management.

Judging by the fact that Companhia Paranaense de Energia – COPEL (NYSE:ELP) has faced falling interest from hedge fund managers, we can see that there was a specific group of fund managers that slashed their full holdings in the second quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, comprising close to $0.3 million in stock. Michael Platt and William Reeves’s fund, BlueCrest Capital Mgmt., also sold off its stock, about $0.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to Companhia Paranaense de Energia – COPEL (NYSE:ELP). We will take a look at Bank of Hawaii Corporation (NYSE:BOH), Helen of Troy Limited (NASDAQ:HELE), GrafTech International Ltd. (NYSE:EAF), and Community Bank System, Inc. (NYSE:CBU). This group of stocks’ market values match ELP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOH 12 87202 0
HELE 20 152715 -1
EAF 27 246790 3
CBU 12 29802 4
Average 17.75 129127 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $67 million in ELP’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Bank of Hawaii Corporation (NYSE:BOH) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Companhia Paranaense de Energia – COPEL (NYSE:ELP) is even less popular than BOH. Hedge funds dodged a bullet by taking a bearish stance towards ELP. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ELP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ELP investors were disappointed as the stock returned -5.4% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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