Were Hedge Funds Right About PG&E Corporation (PCG) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards PG&E Corporation (NYSE:PCG) and determine whether hedge funds skillfully traded this stock.

Is PG&E Corporation (NYSE:PCG) an outstanding investment right now? Hedge funds were becoming less hopeful. The number of long hedge fund positions shrunk by 2 lately. Our calculations also showed that PCG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are a multitude of signals shareholders use to appraise publicly traded companies. A duo of the most innovative signals are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can outpace the broader indices by a healthy amount (see the details here).

Kevin Michael Ulrich Anchorage Advisors

Kevin Michael Ulrich of Anchorage Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the fresh hedge fund action encompassing PG&E Corporation (NYSE:PCG).

What does smart money think about PG&E Corporation (NYSE:PCG)?

At Q1’s end, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 72 hedge funds with a bullish position in PCG a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Abrams Capital Management was the largest shareholder of PG&E Corporation (NYSE:PCG), with a stake worth $224.8 million reported as of the end of September. Trailing Abrams Capital Management was Anchorage Advisors, which amassed a stake valued at $224.8 million. Silver Point Capital, Pentwater Capital Management, and Knighthead Capital 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 Knighthead Capital allocated the biggest weight to PG&E Corporation (NYSE:PCG), around 26.06% of its 13F portfolio. Silver Point Capital is also relatively very bullish on the stock, designating 25.29 percent of its 13F equity portfolio to PCG.

Due to the fact that PG&E Corporation (NYSE:PCG) has faced declining sentiment from the smart money, logic holds that there was a specific group of fund managers who sold off their full holdings by the end of the first quarter. It’s worth mentioning that Matthew Knauer and Mina Faltas’s Nokota Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $83.3 million in stock. D. E. Shaw’s fund, D E Shaw, also sold off its stock, about $64.6 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to PG&E Corporation (NYSE:PCG). We will take a look at Nuance Communications Inc. (NASDAQ:NUAN), AECOM (NYSE:ACM), Paylocity Holding Corp (NASDAQ:PCTY), and GFL Environmental Inc. (NYSE:GFL). All of these stocks’ market caps are similar to PCG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NUAN 42 764864 3
ACM 39 670829 3
PCTY 33 409592 7
GFL 10 150736 10
Average 31 499005 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $1985 million in PCG’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand GFL Environmental Inc. (NYSE:GFL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks PG&E Corporation (NYSE:PCG) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately PCG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PCG were disappointed as the stock returned -1.3% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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