Hedge Funds Aren’t Crazy About Duke Energy Corporation (DUK) Anymore

Reymerlyn Martin

Updated Tue, Dec 18, 2018, 8:23 PM

Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Duke Energy Corporation (NYSE:DUK).

Is Duke Energy Corporation (NYSE:DUK) an outstanding investment right now? Investors who are in the know are becoming less hopeful. The number of long hedge fund positions dropped by 7 lately. Our calculations also showed that DUK isn't among the 30 most popular stocks among hedge funds. DUK was in 17 hedge funds' portfolios at the end of September. There were 24 hedge funds in our database with DUK positions at the end of the previous quarter.

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 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Let's take a look at the fresh hedge fund action surrounding Duke Energy Corporation (NYSE:DUK).

How have hedgies been trading Duke Energy Corporation (NYSE:DUK)?

At Q3's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from the previous quarter. The graph below displays the number of hedge funds with bullish position in DUK over the last 13 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Duke Energy Corporation (NYSE:DUK), which was worth $484.2 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $285.7 million worth of shares. Moreover, Luminus Management, Citadel Investment Group, and AQR Capital Management were also bullish on Duke Energy Corporation (NYSE:DUK), allocating a large percentage of their portfolios to this stock.

Seeing as Duke Energy Corporation (NYSE:DUK) has experienced falling interest from the smart money, logic holds that there exists a select few money managers that slashed their positions entirely heading into Q3. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management sold off the biggest stake of all the hedgies monitored by Insider Monkey, worth about $84.4 million in stock. Zach Schreiber's fund, Point State Capital, also cut its stock, about $49.7 million worth. These moves are important to note, as total hedge fund interest dropped by 7 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Duke Energy Corporation (NYSE:DUK). We will take a look at Twenty-First Century Fox Inc (NASDAQ:FOXA), Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG), Enbridge Inc (NYSE:ENB), and Ecopetrol S.A. (NYSE:EC). This group of stocks' market valuations are closest to DUK's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FOXA,73,10493159,-5 SMFG,10,500999,2 ENB,21,185171,5 EC,13,308393,2 Average,29.25,2871931,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $2.87 billion. That figure was $1.23 billion in DUK's case. Twenty-First Century Fox Inc (NASDAQ:FOXA) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. Duke Energy Corporation (NYSE:DUK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard FOXA might be a better candidate to consider a long position.

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

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