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Were Hedge Funds Right About Selling Dumping PPL Corporation (PPL)?

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 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 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 PPL Corporation (NYSE:PPL).

PPL Corporation (NYSE:PPL) was in 20 hedge funds’ portfolios at the end of the second quarter of 2019. PPL shareholders have witnessed a decrease in hedge fund sentiment in recent months. There were 22 hedge funds in our database with PPL positions at the end of the previous quarter. Our calculations also showed that PPL 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.

Why do we pay any attention at all to hedge fund sentiment? 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.

PPL_oct2019

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 review the latest hedge fund action encompassing PPL Corporation (NYSE:PPL).

What have hedge funds been doing with PPL Corporation (NYSE:PPL)?

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in PPL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Zilvinas Zach Mecelis Covalis Capital

Among these funds, Zimmer Partners held the most valuable stake in PPL Corporation (NYSE:PPL), which was worth $532.3 million at the end of the second quarter. On the second spot was Renaissance Technologies which amassed $122.1 million worth of shares. Moreover, Covalis Capital, Adage Capital Management, and AQR Capital Management were also bullish on PPL Corporation (NYSE:PPL), allocating a large percentage of their portfolios to this stock.

Due to the fact that PPL Corporation (NYSE:PPL) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there is a sect of money managers who were dropping their entire stakes by the end of the second quarter. At the top of the heap, Joe Huber’s Huber Capital Management dumped the biggest investment of all the hedgies followed by Insider Monkey, worth about $1.5 million in stock. Joel Greenblatt’s fund, Gotham Asset Management, also cut its stock, about $1.4 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to PPL Corporation (NYSE:PPL). These stocks are Stanley Black & Decker, Inc. (NYSE:SWK), Hormel Foods Corporation (NYSE:HRL), Edison International (NYSE:EIX), and Realty Income Corporation (NYSE:O). This group of stocks’ market caps are closest to PPL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWK 27 1068040 -4
HRL 16 155140 1
EIX 33 1771587 6
O 22 235043 7
Average 24.5 807453 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $807 million. That figure was $858 million in PPL’s case. Edison International (NYSE:EIX) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 16 bullish hedge fund positions. PPL Corporation (NYSE:PPL) is not the least popular stock in this group but hedge fund interest is still below average. 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 PPL, though not to the same extent, as the stock returned 3% during the third quarter and outperformed the market.

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

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