Hedge Funds Are Crazy About Sempra Energy (SRE)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Sempra Energy (NYSE:SRE).

Sempra Energy (NYSE:SRE) was in 33 hedge funds’ portfolios at the end of the third quarter of 2018. SRE investors should pay attention to an increase in hedge fund sentiment recently. There were 22 hedge funds in our database with SRE holdings at the end of the previous quarter. Our calculations also showed that sre isn’t among the 30 most popular stocks among hedge funds.

If you’d ask most market participants, hedge funds are viewed as slow, old financial tools of the past. While there are more than 8,000 funds with their doors open today, Our researchers look at the moguls of this club, around 700 funds. These investment experts watch over bulk of the smart money’s total capital, and by monitoring their highest performing equity investments, Insider Monkey has figured out a few investment strategies that have historically beaten the market. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by 6 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 24% since February 2017 (through December 3rd) even though the market was up nearly 23% during the same period. We just shared a list of 11 short targets in our latest quarterly update.


Let’s view the new hedge fund action surrounding Sempra Energy (NYSE:SRE).

How are hedge funds trading Sempra Energy (NYSE:SRE)?

Heading into the fourth quarter of 2018, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRE over the last 13 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SRE Positions

More specifically, Elliott Management was the largest shareholder of Sempra Energy (NYSE:SRE), with a stake worth $1291.1 million reported as of the end of September. Trailing Elliott Management was Zimmer Partners, which amassed a stake valued at $928.9 million. Citadel Investment Group, Balyasny Asset Management, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Now, specific money managers have been driving this bullishness. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most outsized position in Sempra Energy (NYSE:SRE). Adage Capital Management had $40.8 million invested in the company at the end of the quarter. Jos Shaver’s Electron Capital Partners also made a $25.5 million investment in the stock during the quarter. The other funds with brand new SRE positions are Steve Cohen’s Point72 Asset Management, Howard Marks’s Oaktree Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s check out hedge fund activity in other stocks similar to Sempra Energy (NYSE:SRE). These stocks are Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), SunTrust Banks, Inc. (NYSE:STI), TE Connectivity Ltd. (NYSE:TEL), and Roper Technologies, Inc. (NYSE:ROP). This group of stocks’ market valuations are similar to SRE’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALXN 37 2808171 -6
STI 22 319050 -3
TEL 30 1069097 1
ROP 32 861431 6
Average 30.25 1264437 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $1.26 billion. That figure was $2.91 billion in SRE’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand SunTrust Banks, Inc. (NYSE:STI) is the least popular one with only 22 bullish hedge fund positions. Sempra Energy (NYSE:SRE) 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. In this regard ALXN might be a better candidate to consider a long position.

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