Investing 101: Hedge Funds Love These Four Low Beta Stocks

(Written by Becca Lipman. List compiled by Eben Esterhuizen, CFA. Beta information from Finviz, institutional data sourced from Fidelity.)

Are you a follower of big money trends? Or perhaps you are looking for stocks with little market volatility in the midst of financial uncertainty. Either way, the following list of low beta stocks with institutional buying should pique your interest.

To create our list we searched through a universe of low beta stocks, meaning they have a lesser reaction to overall market changes, for those that have experienced bullish sentiment from hedge funds. To account for institutional sentiment, all of the names below have experienced significant levels of net positive inflows from institutions throughout the current quarter.

We were left with four names. They are listed below with relevant data.

For a more detailed understanding of “beta” and “institutional buying” use the following explanations before viewing our final list below.

Beta allows investors to quickly gauge how volatile/risky a stock is. It measures how the stock has behaved relative to the market in the past (often enough a useful predictor for future performance, although past performance does not guarantee future results).

A beta of 1 indicates the stock has generally moved in tandem with the market. Ex: When the market rose by 2%, the stock rose by 2% as well.

A beta between zero and 1 means the stock has generally been less volatile than the market (less risk for investors). Ex: If beta is 0.5 – 50% less volatile than the market – when the market rose by 2%, the stock generally rose by 1%. When the market dropped by 2%, the stock generally dropped by only 1%.

If a stock has a negative beta, it means the stock has generally moved in the opposite direction of the market. Ex: If beta is -0.5, when the market dropped by 2%, the stock generally rose by 1%. If beta is -2, when the market rose by 2%, the stock generally dropped by 4%.

More positive and more negative (ie, if beta is 2.5 or -2.5) generally indicates high possible returns but also an equally high risk.

Institutional investors are also known as “big money” investors or managers. They represent big pools of money such as investment banks, pension funds, mutual funds, hedge funds, endowment funds, etc. When they invest in stocks, they can invest hundreds of thousands of dollars or more at one time. These transactions, called “block trades,” can have a significant effect on share prices.

Because institutional investors handle such large amounts of money, it is easy enough to assume that the big money managers know what they are doing — or at the very least know more than the average investor. This is why these investors are also sometimes referred to as “smart money.”

If institutional investors start investing in a company, regular investors can assume that some of the most talented analysts and money managers expect the company’s share prices to increase over time. The stocks on our list are experiencing significant investment from big money.

Hedge funds feel these names can offer security, and perhaps profit, in the current market. Do you agree?

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1. American Capital Agency Corp. (AGNC): Operates as a real estate investment trust (REIT). Beta at 0.48. Net institutional purchases in the current quarter at 25.4M shares, which represents about 14.23% of the company’s float of 178.45M shares.

2. Cheniere Energy, Inc. (LNG): Engages in the ownership and operation of liquefied natural gas (LNG) receiving terminals and natural gas pipelines in the Gulf Coast of the United States. Beta at 0.04. Net institutional purchases in the current quarter at 14.1M shares, which represents about 23.12% of the company’s float of 60.98M shares.

3. PPL Corporation (PPL): Generates and sells electricity; and delivers natural gas to approximately 5.3 million utility customers primarily in the northeastern and northwestern US. Beta at 0.45. Net institutional purchases in the current quarter at 95.0M shares, which represents about 16.45% of the company’s float of 577.48M shares.

4. US Gold Corporation (UXG): Engages in the exploration for, development of, production, and sale of gold, silver, and other precious metals. Beta at -0.19. Net institutional purchases in the current quarter at 6.5M shares, which represents about 6.04% of the company’s float of 107.66M shares.

Interactive Chart: Press Play to see how analyst ratings have changed for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


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