Were Hedge Funds Right About Flocking Into CenterPoint Energy, Inc. (CNP) ?

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of CenterPoint Energy, Inc. (NYSE:CNP).

Is CenterPoint Energy, Inc. (NYSE:CNP) a worthy investment now? Money managers are becoming hopeful. The number of long hedge fund positions went up by 1 lately. Our calculations also showed that cnp isn’t among the 30 most popular stocks among hedge funds. CNP was in 34 hedge funds’ portfolios at the end of March. There were 33 hedge funds in our database with CNP 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

Noam Gottesman GLG Partners

Noam Gottesman, GLG Partners

We’re going to go over the fresh hedge fund action surrounding CenterPoint Energy, Inc. (NYSE:CNP).

How are hedge funds trading CenterPoint Energy, Inc. (NYSE:CNP)?

Heading into the second quarter of 2019, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CNP over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CNP Positions

The largest stake in CenterPoint Energy, Inc. (NYSE:CNP) was held by AQR Capital Management, which reported holding $191 million worth of stock at the end of March. It was followed by Adage Capital Management with a $138.9 million position. Other investors bullish on the company included Millennium Management, GLG Partners, and Citadel Investment Group.

As industrywide interest jumped, key money managers have jumped into CenterPoint Energy, Inc. (NYSE:CNP) headfirst. OZ Management, managed by Daniel S. Och, assembled the biggest position in CenterPoint Energy, Inc. (NYSE:CNP). OZ Management had $25.4 million invested in the company at the end of the quarter. Robert B. Gillam’s McKinley Capital Management also initiated a $13.5 million position during the quarter. The following funds were also among the new CNP investors: Minhua Zhang’s Weld Capital Management, Alec Litowitz and Ross Laser’s Magnetar Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s go over hedge fund activity in other stocks similar to CenterPoint Energy, Inc. (NYSE:CNP). These stocks are ANSYS, Inc. (NASDAQ:ANSS), Brookfield Property REIT Inc. (NASDAQ:BPR), Ryanair Holdings plc (NASDAQ:RYAAY), and Laboratory Corp. of America Holdings (NYSE:LH). This group of stocks’ market caps resemble CNP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ANSS 28 837871 -1
BPR 15 85268 1
RYAAY 18 429319 9
LH 39 1198920 1
Average 25 637845 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $638 million. That figure was $939 million in CNP’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Brookfield Property REIT Inc. (NASDAQ:BPR) is the least popular one with only 15 bullish hedge fund positions. CenterPoint Energy, Inc. (NYSE:CNP) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CNP wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CNP were disappointed as the stock returned -7% during the same 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 13 of these stocks already outperformed the market so far in Q2.

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