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Is National Grid plc (NGG) Going to Burn These Hedge Funds?

In this article you are going to find out whether hedge funds think National Grid plc (NYSE:NGG) 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.

Hedge fund interest in National Grid plc (NYSE:NGG) 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 NGG to other stocks including Zoom Video Communications, Inc. (NASDAQ:ZM), Walgreens Boots Alliance Inc (NASDAQ:WBA), and Equinor ASA (NYSE:EQNR) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are dozens of formulas stock traders have at their disposal to appraise publicly traded companies. Some of the most useful formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outperform the S&P 500 by a healthy margin (see the details here).

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now let’s take a look at the key hedge fund action encompassing National Grid plc (NYSE:NGG).

Hedge fund activity in National Grid plc (NYSE:NGG)

Heading into the second quarter of 2020, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 8 hedge funds with a bullish position in NGG a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in National Grid plc (NYSE:NGG) was held by Renaissance Technologies, which reported holding $408.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $24.9 million position. Other investors bullish on the company included Citadel Investment Group, Citadel Investment Group, and D E Shaw. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to National Grid plc (NYSE:NGG), around 0.4% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.07 percent of its 13F equity portfolio to NGG.

Judging by the fact that National Grid plc (NYSE:NGG) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few fund managers that decided to sell off their full holdings in the first quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the largest investment of the 750 funds monitored by Insider Monkey, worth about $0.4 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund cut about $0.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as National Grid plc (NYSE:NGG) but similarly valued. These stocks are Zoom Video Communications, Inc. (NASDAQ:ZM), Walgreens Boots Alliance Inc (NASDAQ:WBA), Equinor ASA (NYSE:EQNR), and Illumina, Inc. (NASDAQ:ILMN). This group of stocks’ market valuations resemble NGG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZM 47 2383850 19
WBA 45 461497 7
EQNR 11 281375 -3
ILMN 34 1130705 -9
Average 34.25 1064357 3.5

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 $1064 million. That figure was $435 million in NGG’s case. Zoom Video Communications, Inc. (NASDAQ:ZM) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks National Grid plc (NYSE:NGG) is even less popular than EQNR. Hedge funds dodged a bullet by taking a bearish stance towards NGG. 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 NGG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); NGG investors were disappointed as the stock returned 2.2% 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.