Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 9.9 percentage points through the end of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Hedge fund interest in Evergy, Inc. (NYSE:EVRG) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare EVRG to other stocks including Loews Corporation (NYSE:L), Deutsche Bank Aktiengesellschaft (NYSE:DB), and Nucor Corporation (NYSE:NUE) to get a better sense of its popularity.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to view the new hedge fund action surrounding Evergy, Inc. (NYSE:EVRG).
How have hedgies been trading Evergy, Inc. (NYSE:EVRG)?
At Q3’s end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in EVRG over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Evergy, Inc. (NYSE:EVRG), which was worth $465.4 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $142.1 million worth of shares. GLG Partners, D E Shaw, and AQR 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 Ecofin Ltd allocated the biggest weight to Evergy, Inc. (NYSE:EVRG), around 1.92% of its portfolio. Huber Capital Management is also relatively very bullish on the stock, designating 0.91 percent of its 13F equity portfolio to EVRG.
Seeing as Evergy, Inc. (NYSE:EVRG) has experienced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of funds who sold off their positions entirely in the third quarter. It’s worth mentioning that Stuart J. Zimmer’s Zimmer Partners sold off the biggest stake of all the hedgies watched by Insider Monkey, comprising about $17.5 million in stock, and Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital was right behind this move, as the fund said goodbye to about $16.7 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Evergy, Inc. (NYSE:EVRG). We will take a look at Loews Corporation (NYSE:L), Deutsche Bank Aktiengesellschaft (NYSE:DB), Nucor Corporation (NYSE:NUE), and W. P. Carey Inc. (NYSE:WPC). All of these stocks’ market caps are similar to EVRG’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $353 million. That figure was $867 million in EVRG’s case. Nucor Corporation (NYSE:NUE) is the most popular stock in this table. On the other hand Deutsche Bank Aktiengesellschaft (NYSE:DB) is the least popular one with only 12 bullish hedge fund positions. Evergy, Inc. (NYSE:EVRG) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately EVRG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on EVRG were disappointed as the stock returned -4.2% during the fourth quarter (through the end of November) 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.