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Hedge Funds Sold Sempra Energy (SRE) A Little Bit Too Early

The financial regulations require hedge funds and wealthy investors that crossed the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 28th. We at Insider Monkey have made an extensive database of nearly 750 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Sempra Energy (NYSE:SRE) based on those filings.

Sempra Energy (NYSE:SRE) shareholders have witnessed a decrease in hedge fund interest recently. SRE was in 25 hedge funds’ portfolios at the end of June. There were 31 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 (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.

SRE_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, 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. We’re going to take a look at the recent hedge fund action surrounding Sempra Energy (NYSE:SRE).

What does smart money think about Sempra Energy (NYSE:SRE)?

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SRE over the last 16 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

When looking at the institutional investors followed by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the biggest position in Sempra Energy (NYSE:SRE). Zimmer Partners has a $830.8 million position in the stock, comprising 8.8% of its 13F portfolio. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $93.3 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions encompass Jos Shaver’s Electron Capital Partners, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group.

Seeing as Sempra Energy (NYSE:SRE) has experienced declining sentiment from hedge fund managers, it’s safe to say that there is a sect of hedge funds who were dropping their full holdings in the second quarter. Intriguingly, Paul Singer’s Elliott Management cut the biggest stake of the 750 funds monitored by Insider Monkey, valued at about $1428.5 million in stock, and Anand More’s SAYA Management was right behind this move, as the fund said goodbye to about $14.5 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 6 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sempra Energy (NYSE:SRE) but similarly valued. We will take a look at Dell Technologies Inc. (NYSE:DELL), Johnson Controls International plc (NYSE:JCI), BB&T Corporation (NYSE:BBT), and Autodesk, Inc. (NASDAQ:ADSK). All of these stocks’ market caps match SRE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DELL 40 1937951 3
JCI 18 634680 -7
BBT 23 352478 -7
ADSK 56 3385274 -1
Average 34.25 1577596 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1578 million. That figure was $1323 million in SRE’s case. Autodesk, Inc. (NASDAQ:ADSK) is the most popular stock in this table. On the other hand Johnson Controls International plc (NYSE:JCI) is the least popular one with only 18 bullish hedge fund positions. Sempra Energy (NYSE:SRE) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SRE as the stock returned 8.9% during the same time frame and outperformed the market by an even larger margin.

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

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