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Is Sempra Energy (SRE) Going To Burn These Hedge Funds ?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Sempra Energy (NYSE:SRE).

Sempra Energy (NYSE:SRE) investors should be aware of an increase in hedge fund sentiment lately. Our calculations also showed that SRE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Clint Carlson of Carlson Capital

Clint Carlson of Carlson Capital

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 go over the new hedge fund action surrounding Sempra Energy (NYSE:SRE).

What have hedge funds been doing with Sempra Energy (NYSE:SRE)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in SRE a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

SRE_dec2019

The largest stake in Sempra Energy (NYSE:SRE) was held by Zimmer Partners, which reported holding $717.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $101.4 million position. Other investors bullish on the company included D E Shaw, Adage Capital Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Sempra Energy (NYSE:SRE), around 7.81% of its portfolio. Ecofin Ltd is also relatively very bullish on the stock, dishing out 1.99 percent of its 13F equity portfolio to SRE.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, established the largest position in Sempra Energy (NYSE:SRE). Carlson Capital had $37.7 million invested in the company at the end of the quarter. Matthew Tewksbury’s Stevens Capital Management also initiated a $8.6 million position during the quarter. The other funds with brand new SRE positions are John Overdeck and David Siegel’s Two Sigma Advisors, Paul Tudor Jones’s Tudor Investment Corp, and Benjamin A. Smith’s Laurion Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sempra Energy (NYSE:SRE) but similarly valued. These stocks are Marathon Petroleum Corp (NYSE:MPC), Occidental Petroleum Corporation (NYSE:OXY), Ross Stores, Inc. (NASDAQ:ROST), and Constellation Brands, Inc. (NYSE:STZ). All of these stocks’ market caps resemble SRE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPC 63 2858868 3
OXY 57 2774136 15
ROST 39 1067484 7
STZ 41 1671280 3
Average 50 2092942 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 50 hedge funds with bullish positions and the average amount invested in these stocks was $2093 million. That figure was $1270 million in SRE’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Ross Stores, Inc. (NASDAQ:ROST) is the least popular one with only 39 bullish hedge fund positions. Compared to these stocks Sempra Energy (NYSE:SRE) is even less popular than ROST. Hedge funds dodged a bullet by taking a bearish stance towards SRE. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately SRE wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SRE investors were disappointed as the stock returned -0.2% 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 70 percent of these stocks already outperformed the market so far in Q4.

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

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