Were Hedge Funds Right About Nextera Energy Partners LP (NEP)?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Nextera Energy Partners LP (NYSE:NEP) makes for a good investment right now.

Nextera Energy Partners LP (NYSE:NEP) investors should pay attention to a decrease in hedge fund interest recently. Nextera Energy Partners LP (NYSE:NEP) was in 17 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that NEP isn’t among the 30 most popular stocks among hedge funds (click for Q1 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Now we’re going to take a peek at the recent hedge fund action encompassing Nextera Energy Partners LP (NYSE:NEP).

Do Hedge Funds Think NEP Is A Good Stock To Buy Now?

At first quarter’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -47% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in NEP a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

More specifically, Electron Capital Partners was the largest shareholder of Nextera Energy Partners LP (NYSE:NEP), with a stake worth $74.4 million reported as of the end of March. Trailing Electron Capital Partners was Renaissance Technologies, which amassed a stake valued at $30.2 million. Millennium Management, Citadel Investment Group, and Holocene Advisors 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 5.15% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, dishing out 1.53 percent of its 13F equity portfolio to NEP.

Since Nextera Energy Partners LP (NYSE:NEP) has witnessed declining sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of hedgies that elected to cut their full holdings by the end of the first quarter. At the top of the heap, James Dinan’s York Capital Management cut the largest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $15 million in stock, and Bernard Lambilliotte’s Ecofin Ltd was right behind this move, as the fund sold off about $10.4 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 15 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Nextera Energy Partners LP (NYSE:NEP) but similarly valued. These stocks are Tandem Diabetes Care Inc (NASDAQ:TNDM), Douglas Emmett, Inc. (NYSE:DEI), SolarWinds Corporation (NYSE:SWI), Crane Co. (NYSE:CR), MAXIMUS, Inc. (NYSE:MMS), Braskem SA (NYSE:BAK), and Glacier Bancorp, Inc. (NASDAQ:GBCI). This group of stocks’ market valuations resemble NEP’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TNDM 25 204890 -1
DEI 14 337957 -7
SWI 22 2290541 -2
CR 17 277149 -7
MMS 18 116208 -6
BAK 8 29378 0
GBCI 16 66851 5
Average 17.1 474711 -2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $475 million. That figure was $176 million in NEP’s case. Tandem Diabetes Care Inc (NASDAQ:TNDM) is the most popular stock in this table. On the other hand Braskem SA (NYSE:BAK) is the least popular one with only 8 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. Our overall hedge fund sentiment score for NEP is 32.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately NEP wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); NEP investors were disappointed as the stock returned 2.9% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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