We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Sempra Energy (NYSE:SRE).
Is SRE a good stock to buy? Sempra Energy (NYSE:SRE) investors should be aware of a decrease in enthusiasm from smart money recently. Sempra Energy (NYSE:SRE) was in 32 hedge funds’ portfolios at the end of September. The all time high for this statistic is 35. 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 for a quick look at the top 5 stocks).
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Sempra Energy (NYSE:SRE).
Do Hedge Funds Think SRE Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in SRE a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Adage Capital Management held the most valuable stake in Sempra Energy (NYSE:SRE), which was worth $98.9 million at the end of the third quarter. On the second spot was D E Shaw which amassed $91.2 million worth of shares. D E Shaw, Highbridge Capital Management, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Highbridge Capital Management allocated the biggest weight to Sempra Energy (NYSE:SRE), around 3.3% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, setting aside 1.27 percent of its 13F equity portfolio to SRE.
Because Sempra Energy (NYSE:SRE) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there is a sect of fund managers who sold off their positions entirely in the third quarter. At the top of the heap, Highbridge Capital Management cut the biggest investment of the “upper crust” of funds monitored by Insider Monkey, worth about $5.3 million in stock. D. E. Shaw’s fund, D E Shaw, also dropped its stock, about $2.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sempra Energy (NYSE:SRE) but similarly valued. These stocks are O’Reilly Automotive Inc (NASDAQ:ORLY), Seagen Inc. (NASDAQ:SGEN), ICICI Bank Limited (NYSE:IBN), Centene Corporation (NYSE:CNC), Metlife Inc (NYSE:MET), IDEXX Laboratories, Inc. (NASDAQ:IDXX), and CoStar Group Inc (NASDAQ:CSGP). This group of stocks’ market caps are closest to SRE’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 42.9 hedge funds with bullish positions and the average amount invested in these stocks was $2854 million. That figure was $556 million in SRE’s case. O’Reilly Automotive Inc (NASDAQ:ORLY) is the most popular stock in this table. On the other hand ICICI Bank Limited (NYSE:IBN) is the least popular one with only 24 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 overall hedge fund sentiment score for SRE is 41.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on SRE, though not to the same extent, as the stock returned 11.3% since the end of Q3 (through December 18th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.