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Were Hedge Funds Right About Duke Energy Corporation (DUK)?

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. Keeping this in mind, let’s take a look at whether Duke Energy Corporation (NYSE:DUK) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Duke Energy Corporation (NYSE:DUK) a healthy stock for your portfolio? The best stock pickers are becoming more confident. The number of long hedge fund positions advanced by 5 lately. Our calculations also showed that DUK 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). DUK was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 32 hedge funds in our database with DUK holdings at the end of the previous quarter.

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 S&P 500 ETFs by 41 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 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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the recent hedge fund action surrounding Duke Energy Corporation (NYSE:DUK).

What does smart money think about Duke Energy Corporation (NYSE:DUK)?

At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the third quarter of 2019. By comparison, 17 hedge funds held shares or bullish call options in DUK 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.

The largest stake in Duke Energy Corporation (NYSE:DUK) was held by Renaissance Technologies, which reported holding $569.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $196.1 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Adage Capital Management. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to Duke Energy Corporation (NYSE:DUK), around 6.52% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, earmarking 6.43 percent of its 13F equity portfolio to DUK.

With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the most outsized position in Duke Energy Corporation (NYSE:DUK). Point72 Asset Management had $34 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $12.7 million position during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Duke Energy Corporation (NYSE:DUK) but similarly valued. These stocks are Equinor ASA (NYSE:EQNR), Target Corporation (NYSE:TGT), Canadian National Railway Company (NYSE:CNI), and Zoetis Inc (NYSE:ZTS). This group of stocks’ market caps are closest to DUK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EQNR 14 424786 -1
TGT 53 2495450 -2
CNI 29 2000657 0
ZTS 48 2230316 -5
Average 36 1787802 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1788 million. That figure was $1535 million in DUK’s case. Target Corporation (NYSE:TGT) is the most popular stock in this table. On the other hand Equinor ASA (NYSE:EQNR) is the least popular one with only 14 bullish hedge fund positions. Duke Energy Corporation (NYSE:DUK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on DUK, though not to the same extent, as the stock returned -8.5% during the first four months of 2020 (through May 1st) and outperformed the market as well.
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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