Large investors went bargain hunting in the gas utility sector during the fourth quarter of 2022, with institutional investors scooping up shares following a sell-off in the prior quarter.
The quarter did not see asset managers, hedge funds or other institutional investors buy into the sector with the same fervor seen at the start of 2022. However, net inflows increased in the final three months of the year from the muted middle quarters.
The broader utility sector's fourth-quarter recovery took place on thinner-than-expected trading volume, according to an analysis of Nasdaq Investor Flows by Nasdaq IR Intelligence senior analyst Massud Ghaussy. Pressure from short sellers eased, while investment firms with long-only strategies took advantage of an aggressive stock price pullback, Ghaussy said.
Passive and index strategy investors also reclaimed their place as the industry's top stock buyers following a pause in September 2022, Ghaussy said. Finally, more active hedge funds reduced their exposure to utilities during the quarter, turning quick profits after purchasing shares at the depth of the sell-off, according to Ghaussy.
Sector laggards become leaders
Among a basket of gas utility stock selected by S&P Global Commodity Insights, UGI Corp. posted the largest net inflows in the fourth quarter of 2022. In the prior two quarters, UGI saw the group's largest outflows.
Value-hunting was likely at play; UGI was the biggest stock price laggard in 2022 but posted the group's second-strongest rally in the final three months of the year.
South Jersey Industries Inc. likewise saw a sharp reversal, posting the second-largest net inflows after muted activity in recent quarters. The buying occurred as the company moved toward closing its buyout at $36 per share, finalized on Feb. 1, 2023. The stock was trading at $33.42 heading into the fourth quarter of 2022.
Large-cap gas utility operator Atmos Energy Corp. continued to attract strong, steady institutional investor flows, while Tulsa, Okla.-based distributor One Gas Inc. saw its highest net inflows of the year. Another pure-play gas utility, Spire Inc., posted a small fourth-quarter downtick in net inflows after activity remained roughly steady in the prior two periods.
Shifting interests
New Jersey Resources Corp. saw net inflows from institutional investors moderate for a second consecutive quarter. The company is the group's best stock price performer over the last year, creating opportunities for investors to take profits.
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Similarly, Northwest Natural Holding Co. saw net inflows continue to moderate steadily since the beginning of 2022. A new stake by hedge fund Hotchkis & Wiley Capital Management LLC offset net outflows.
Net inflows into Southwest Gas Holdings Inc. were up slightly in the fourth quarter of 2022 after nearly flatlining in the prior quarter. Inflows surged in the first quarter of 2022 after hedge funds began following activist investor Carl Icahn into the stock in the prior quarter.
As of Dec. 31, 2022, Icahn's position in Southwest Gas was unchanged from the prior quarter. Meanwhile, Zimmer Partners LP, which led the first-quarter 2022 buying, exited its stake by year-end.
Diversified energy distributor Chesapeake Utilities Corp. posted the group's only net outflows for the quarter, continuing a trend of relative underperformance. However, the company appears poised for a reversal; its stock price is up nearly 9% year-to-date, leading the group.
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