Were Hedge Funds Right About Piling Into Xcel Energy Inc (XEL)?

Is Xcel Energy Inc (NASDAQ:XEL) 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, 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 Xcel Energy Inc (NASDAQ:XEL) a buy here? Money managers are getting more optimistic. The number of bullish hedge fund bets went up by 2 lately. Our calculations also showed that XEL isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a glance at the latest hedge fund action regarding Xcel Energy Inc (NASDAQ:XEL).

How are hedge funds trading Xcel Energy Inc (NASDAQ:XEL)?

At the end of the second quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in XEL a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

David Harding

The largest stake in Xcel Energy Inc (NASDAQ:XEL) was held by Renaissance Technologies, which reported holding $316 million worth of stock at the end of March. It was followed by AQR Capital Management with a $65.5 million position. Other investors bullish on the company included Winton Capital Management, Millennium Management, and Citadel Investment Group.

As aggregate interest increased, specific money managers have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, assembled the largest position in Xcel Energy Inc (NASDAQ:XEL). Two Sigma Advisors had $2.1 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also initiated a $1.4 million position during the quarter. The other funds with brand new XEL positions are Karim Abbadi and Edward McBride’s Centiva Capital, Joel Greenblatt’s Gotham Asset Management, and Steve Cohen’s Point72 Asset Management.

Let’s also examine hedge fund activity in other stocks similar to Xcel Energy Inc (NASDAQ:XEL). We will take a look at Mercadolibre Inc (NASDAQ:MELI), Alcon Inc. (NYSE:ALC), Electronic Arts Inc. (NASDAQ:EA), and Ingersoll-Rand Plc (NYSE:IR). All of these stocks’ market caps resemble XEL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MELI 52 3846834 11
ALC 18 454484 18
EA 59 2605780 -2
IR 40 2101164 1
Average 42.25 2252066 7

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.25 hedge funds with bullish positions and the average amount invested in these stocks was $2252 million. That figure was $497 million in XEL’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Alcon Inc. (NYSE:ALC) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Xcel Energy Inc (NASDAQ:XEL) is even less popular than ALC. Hedge funds clearly dropped the ball on XEL 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on XEL as the stock returned 9.8% during the third quarter and outperformed the market by an even larger margin.

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