We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Nextera Energy Partners LP (NYSE:NEP).
Is Nextera Energy Partners LP (NYSE:NEP) ready to rally soon? The smart money is betting on the stock. The number of long hedge fund positions went up by 1 recently. Our calculations also showed that NEP isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are many gauges stock market investors can use to assess stocks. A pair of the best gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce the S&P 500 by a solid amount (see the details here).
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the new hedge fund action surrounding Nextera Energy Partners LP (NYSE:NEP).
What have hedge funds been doing with Nextera Energy Partners LP (NYSE:NEP)?
At Q4’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. On the other hand, there were a total of 12 hedge funds with a bullish position in NEP a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Electron Capital Partners held the most valuable stake in Nextera Energy Partners LP (NYSE:NEP), which was worth $46.9 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $11.8 million worth of shares. Millennium Management, Ecofin Ltd, and Renaissance Technologies 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 Electron Capital Partners allocated the biggest weight to Nextera Energy Partners LP (NYSE:NEP), around 5.61% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, designating 4.44 percent of its 13F equity portfolio to NEP.
Now, key money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, initiated the biggest position in Nextera Energy Partners LP (NYSE:NEP). Marshall Wace LLP had $11.8 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also made a $5.7 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Steve Pattyn’s Yaupon Capital.
Let’s go over hedge fund activity in other stocks similar to Nextera Energy Partners LP (NYSE:NEP). These stocks are Mantech International Corp (NASDAQ:MANT), Enphase Energy Inc (NASDAQ:ENPH), American States Water Co (NYSE:AWR), and Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF). This group of stocks’ market values resemble NEP’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MANT | 23 | 49724 | 7 |
| ENPH | 39 | 443293 | 6 |
| AWR | 21 | 55302 | 4 |
| KOF | 10 | 493100 | -3 |
| Average | 23.25 | 260355 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $127 million in NEP’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 10 bullish hedge fund positions. Nextera Energy Partners LP (NYSE:NEP) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NEP wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NEP investors were disappointed as the stock returned -25.5% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
