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Sempra Energy (SRE) vs. Top 20 Hedge Fund Stocks in 2019

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 31% in 2019 (through December 23rd). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sempra Energy (NYSE:SRE).

Sempra Energy (NYSE:SRE) investors should be aware of an increase in hedge fund interest of late. 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 at the end of this article for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.

Phill Gross of Adage Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now let’s take a peek at the latest hedge fund action regarding Sempra Energy (NYSE:SRE).

Hedge fund activity in 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 second quarter of 2019. On the other hand, there were a total of 33 hedge funds with a bullish position in SRE a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Zimmer Partners held the most valuable stake in Sempra Energy (NYSE:SRE), which was worth $717.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $101.4 million worth of shares. D E Shaw, Adage Capital Management, 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 Zimmer Partners allocated the biggest weight to Sempra Energy (NYSE:SRE), around 7.81% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, designating 1.99 percent of its 13F equity portfolio to SRE.

Now, key money managers were leading the bulls’ herd. Carlson Capital, managed by Clint Carlson, initiated the biggest 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 made a $8.6 million investment in the stock 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 similar to Sempra Energy (NYSE:SRE). These stocks are Marathon Petroleum Corporation (NYSE:MPC), Occidental Petroleum Corporation (NYSE:OXY), Ross Stores, Inc. (NASDAQ:ROST), and Constellation Brands, Inc. (NYSE:STZ). 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
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 Corporation (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 clearly dropped the ball on SRE as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on SRE as the stock returned 42.2% in 2019 (through December 23rd) and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
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.

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