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In this article, via an analysis (based on the latest available Q3 institutional 13-F filings) of the investing activities of the world's largest fund managers managing between $100 billion and over a trillion dollars, we identify the utilities that are being accumulated and those being distributed by these mega managers. The list includes prominent managers such as Wellington Management ($1.6 trillion in total assets under management), Vanguard Group ($1.4 trillion), Fidelity Investments ($640 billion), T Rowe Price ($330 billion), and Goldman Sachs Asset Management ($580 billion), among others. The utilities group includes electric power utilities, gas distribution utilities and the water supply utilities.

We determined, based on our analysis, that mega fund managers are bullish on the utilities group, and during the September quarter, these mega fund managers together added a net $4.26 billion to their $171.5 billion prior quarter position in the group, selling $8.58 billion and buying $12.84 billion worth of stocks in the group. Furthermore, overall they are under-weight in the group by a factor of 0.8; that is, taken together, mega funds have invested 3.3% of their capital in the internet content group compared to the 4.0% weighting of the group in the overall market.

The following are the utilities that mega fund managers are bullish about, and that also have a high dividend yield and are trading at a discount to their peers in the group:

Companhia Energetica (NYSE:CIG): CIG is a Brazilian utility engaged in the generation, transmission and distribution of electricity in Brazil. It has a total installed capacity of 6,909 megawatts, and generates electricity at 59 hydroelectric plants, 3 thermoelectric plants, and 4 wind farms. Mega funds added a net $15 million to their $694 million prior quarter position, and taken together they hold 6.3% of the outstanding shares, significantly less than their 27.0% weighting in the group. This is understandable given that CIG is a Brazilian company, and may have significant institutional ownership by European and Latin American funds as well. The top buyers in Q3 were Capital Research Global Investors ($14 million) and Vanguard Group ($6 million). Overall, 221 institutions hold 43.1% of CIG shares, with Lazard Asset Management ($503 million) being the largest holder by far, at 7.5% of the outstanding shares.

With a dividend yield of 6.2%, CIG is among the largest dividend payers in the group. Also, it trades at a discount 9 forward P/E, and at 1.6 P/B and 5.6 P/CF, compared to averages of 16.4, 1.4 and 6.7 respectively for the electric power utilities group.

Duke Energy Corp. (NYSE:DUK): DUK provides electrical and natural gas utility services to about 4 million electric and 0.5 million gas customers in the Americas. Mega funds added a net $326 million to their $7.01 billion prior quarter position, and taken together they hold 26.7% of the outstanding shares, approximately at par with their 27.0% weighting in the group. The top buyers in Q3 were Fidelity Investments ($157 million) and State Street Corp. ($104 million). Overall, 858 institutions hold 48.8% of DUK shares, with Capital World Investors ($1.59 billion), State Street Corp. ($1.33 billion) and Vanguard Group ($1.13 billion) being the largest holders with 5.8%, 4.8% and 4.1% of the outstanding shares respectively.

DUK pays a dividend yield of 4.8%, well above the 3.8% average for the electric power utilities group. Also, it trades at a discount 14-15 forward P/E, and at 1.2 P/B and 7.1 P/CF, compared to averages of 16.4, 1.4 and 6.7 respectively for the group.

National Grid Plc (NYSE:NGG): NGG is a British company engaged in gas and electric transmission and distribution in the U.K. and U.S. They own and operate the high-voltage electricity transmission network in England and Wales, and Britain’s natural gas transportation system. In the U.S., they are the largest electricity transmission and distribution network in the New England and New York regions. Mega funds added a net $22 million to their $474 million prior quarter position, and taken together they hold 1.4% of the outstanding shares, significantly less than their 27.0% weighting in the group. This is understandable given that NGG is a British company, and may have significant institutional ownership by European and Asian funds. The top buyers in Q3 were Bank of New York Mellon Corp. ($10 million) and Deutsche Bank ($5 million). Overall, 247 institutions hold 5.2% of NGG shares, with Capital World Investors ($327 million) being the largest mega (American) holder with 0.9% of the outstanding shares.

NGG pays a dividend yield of 4.4%, greater than the 3.8% average for the electric power utilities group. Also, it trades at a discount 11-12 forward P/E, and at 2.7 P/B and 4.6 P/CF, compared to averages of 16.4, 1.4 and 6.7 respectively for the group.

Excelon Corp. (NYSE:EXC): EXC is engaged in the generation and distribution of electricity to 5.4 million customers in PA and IL. It has an aggregate net capacity of 25.619 megawatts, and generates electricity from nuclear, fossil, hydroelectric, and renewable sources. Mega funds added a net $479 million to their $9.20 billion prior quarter position, and taken together they hold 33.6% of the outstanding shares, significantly higher than their 27.0% weighting in the group. The top buyers in Q3 were TIAA-CREF Investment Management ($165 million), JP Morgan Chase & Co. ($110 million) and State Street Corp. ($97 million). Overall, 820 institutions hold 65.5% of EXC shares, with State Street Corp. ($1.44 billion), Vanguard Group ($1.17 billion) and T Rowe Price ($1.01 billion) being the largest holders with 4.9%, 4.0% and 3.5% of the outstanding shares respectively.

EXC pays a dividend yield of 4.7%, well above the 3.8% average for the electric power utilities group. Also, it trades at a discount 14-15 forward P/E, and at 2.0 P/B and 7.1 P/CF, compared to averages of 16.4, 1.4 and 6.7 respectively for the group.

Besides the high-dividend undervalued utilities above, the following are the top utilities that were sold by guru funds in Q3 (see Table):

Ameren Corp. (NYSE:AEE): AEE is a holding company providing electric and natural gas utility services in MO and IL. Mega funds cut a net $34 million from their $1.84 billion prior quarter position, and taken together they hold 22.9% of the outstanding shares. The top sellers in Q3 were Janus Capital Management ($43 million) and Bank of New York Mellon Corp. ($26 million). AEE has a dividend yield of 4.7% versus the 3.8% average for its peers in the electric power utilities group, and it also trades at discount 14 forward P/E versus the 16.4 average for the group.

UGI Corp. Holding Co. (NYSE:UGI): UGI is a provider of natural gas and electric services, and it is also engaged in propane and butane distribution. Mega funds cut a net $95 million from their $1.32 billion prior quarter position, and taken together they hold 38.3% of the outstanding shares. The top sellers in Q3 were Fidelity Investments ($52 million), AllianceBernstein ($41 million) and Oppenheimer Funds ($37 million). UGI has a dividend yield of 3.5% versus the 3.2% average for its peers in the gas distribution utilities group, and it also trades at discount 11 forward P/E versus the 15.6 average for the group.

PPL Corp. (NYSE:PPL): PPL is a holding company engaged in electric generation, marketing and distribution in northeastern and northwestern U.S. to approximately 5.3 million utility customers. Mega funds cut a net $267 million from their $6.18 billion prior quarter position, and taken together they hold 34.5% of the outstanding shares. The top seller in Q3 was Capital Research Global Investors ($259 million). PPL has a dividend yield of 4.7% versus the 3.8% average for its peers in the electric power utilities group, and it also trades at discount 12 forward P/E versus the 16.4 average for the group.

Nextera Energy Inc. (NYSE:NEE): NEE is engaged in the generation, transmission, distribution and sale of electricity in the U.S. and Canada. It has approximately 43,000 mega watts of generating capacity, including from renewable sources such as wind and solar, as well as traditional sources including natural gas, nuclear, oil and coal, and hydroelectric power plants. Mega funds cut a net $33 million from their $8.43 billion prior quarter position, and taken together they hold 35.5% of the outstanding shares. The top sellers in Q3 were MFS Investment Management ($88 million) and JP Morgan Chase & Co. ($74 million). NEE has a dividend yield of 4.0% versus the 3.8% average for its peers in the electric power utilities group, and it also trades at discount 12-13 forward P/E versus the 16.4 average for the group.

Table

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General Methodology and Background Information: The latest available institutional 13-F filings of over 30+ mega hedge fund and mutual fund managers were analyzed to determine their capital allocation among different industry groupings, and to determine their favorite picks and pans in each group. These mega fund managers number less than one percent of all funds and yet they control almost half of the U.S. equity discretionary fund assets. The argument is that mega institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When mega Institutional Investors invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence.

This article is part of a series on institutional holdings in various industry groups and sectors, and other articles in the series for this and prior quarters can be accessed from our author page.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.


Source: 4 High-Yield, Undervalued Utilities Being Accumulated By Mega Funds (Plus 4 Being Sold)