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Hedge Funds Have Never Been This Bullish On Xcel Energy Inc (XEL)

In this article you are going to find out whether hedge funds think Xcel Energy Inc (NASDAQ:XEL) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Xcel Energy Inc (NASDAQ:XEL) has seen an increase in enthusiasm from smart money recently. XEL was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with XEL positions at the end of the previous quarter. Our calculations also showed that XEL 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).

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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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 we’re going to take a gander at the fresh hedge fund action regarding Xcel Energy Inc (NASDAQ:XEL).

What have hedge funds been doing with Xcel Energy Inc (NASDAQ:XEL)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 60% from the previous quarter. The graph below displays the number of hedge funds with bullish position in XEL over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies has the most valuable position in Xcel Energy Inc (NASDAQ:XEL), worth close to $252.8 million, comprising 0.2% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $53 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include Stuart J. Zimmer’s Zimmer Partners, Clint Carlson’s Carlson Capital and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to Xcel Energy Inc (NASDAQ:XEL), around 0.43% of its 13F portfolio. Zimmer Partners is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to XEL.

As industrywide interest jumped, some big names were breaking ground themselves. Zimmer Partners, managed by Stuart J. Zimmer, initiated the most valuable position in Xcel Energy Inc (NASDAQ:XEL). Zimmer Partners had $18 million invested in the company at the end of the quarter. Clint Carlson’s Carlson Capital also made a $16.1 million investment in the stock during the quarter. The other funds with brand new XEL positions are D. E. Shaw’s D E Shaw, Michael Gelband’s ExodusPoint Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Xcel Energy Inc (NASDAQ:XEL) but similarly valued. We will take a look at Kinder Morgan Inc (NYSE:KMI), TAL Education Group (NYSE:TAL), Ross Stores, Inc. (NASDAQ:ROST), and HCA Healthcare Inc (NYSE:HCA). This group of stocks’ market values are similar to XEL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KMI 47 947312 7
TAL 38 1801280 8
ROST 49 982341 1
HCA 87 2171218 24
Average 55.25 1475538 10

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.25 hedge funds with bullish positions and the average amount invested in these stocks was $1476 million. That figure was $394 million in XEL’s case. HCA Healthcare Inc (NYSE:HCA) is the most popular stock in this table. On the other hand TAL Education Group (NYSE:TAL) is the least popular one with only 38 bullish hedge fund positions. Compared to these stocks Xcel Energy Inc (NASDAQ:XEL) is even less popular than TAL. Hedge funds dodged a bullet by taking a bearish stance towards XEL. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but managed to beat the market by 14.2 percentage points. Unfortunately XEL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); XEL investors were disappointed as the stock returned 11% during the second quarter (through June 10th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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