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Were Hedge Funds Right Dumping Hawaiian Electric Industries, Inc. (HE)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Hawaiian Electric Industries, Inc. (NYSE:HE) and determine whether the smart money was really smart about this stock.

Hawaiian Electric Industries, Inc. (NYSE:HE) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that HE 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 9 states that banned plastic bags to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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 we’re going to go over the recent hedge fund action encompassing Hawaiian Electric Industries, Inc. (NYSE:HE).

What does smart money think about Hawaiian Electric Industries, Inc. (NYSE:HE)?

At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 12 hedge funds with a bullish position in HE a year ago. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is HE A Good Stock To Buy?

The largest stake in Hawaiian Electric Industries, Inc. (NYSE:HE) was held by ValueAct Capital, which reported holding $139.8 million worth of stock at the end of September. It was followed by AQR Capital Management with a $21.5 million position. Other investors bullish on the company included Winton Capital Management, Renaissance Technologies, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position ValueAct Capital allocated the biggest weight to Hawaiian Electric Industries, Inc. (NYSE:HE), around 2.01% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.35 percent of its 13F equity portfolio to HE.

Since Hawaiian Electric Industries, Inc. (NYSE:HE) has witnessed bearish sentiment from hedge fund managers, logic holds that there were a few hedgies who were dropping their positions entirely by the end of the first quarter. Interestingly, Ken Griffin’s Citadel Investment Group dropped the biggest position of all the hedgies followed by Insider Monkey, worth an estimated $1.8 million in stock, and Mika Toikka’s AlphaCrest Capital Management was right behind this move, as the fund cut about $1.1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 4 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 Hawaiian Electric Industries, Inc. (NYSE:HE) but similarly valued. We will take a look at Rexford Industrial Realty Inc (NYSE:REXR), Trex Company, Inc. (NYSE:TREX), Ares Capital Corporation (NASDAQ:ARCC), and Sonoco Products Company (NYSE:SON). All of these stocks’ market caps resemble HE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REXR 15 38931 -6
TREX 17 93470 -3
ARCC 26 128884 4
SON 23 122325 -1
Average 20.25 95903 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $96 million. That figure was $190 million in HE’s case. Ares Capital Corporation (NASDAQ:ARCC) is the most popular stock in this table. On the other hand Rexford Industrial Realty Inc (NYSE:REXR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Hawaiian Electric Industries, Inc. (NYSE:HE) is even less popular than REXR. Hedge funds dodged a bullet by taking a bearish stance towards HE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately HE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); HE investors were disappointed as the stock returned -17% during the second quarter (through June 25th) 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 so far in 2020.

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