Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don't make them change their opinion towards a company. This time it may be different. During the first 6 weeks of the fourth quarter we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards Aqua America Inc (NYSE:WTR) to find out whether it was one of their high conviction long-term ideas.
Hedge fund interest in Aqua America Inc (NYSE:WTR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Jones Lang LaSalle Inc (NYSE:JLL), Omega Healthcare Investors Inc (NYSE:OHI), and Western Gas Equity Partners LP (NYSE:WGP) to gather more data points.
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 new hedge fund action surrounding Aqua America Inc (NYSE:WTR).
What have hedge funds been doing with Aqua America Inc (NYSE:WTR)?
At Q3's end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, no change from one quarter earlier. By comparison, 10 hedge funds held shares or bullish call options in WTR heading into this year. With hedgies' capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in Aqua America Inc (NYSE:WTR), which was worth $81.8 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $17.5 million worth of shares. Moreover, Millennium Management, AQR Capital Management, and Renaissance Technologies were also bullish on Aqua America Inc (NYSE:WTR), allocating a large percentage of their portfolios to this stock.
Seeing as Aqua America Inc (NYSE:WTR) has witnessed falling interest from the smart money, we can see that there exists a select few hedge funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Ray Dalio's Bridgewater Associates dumped the biggest investment of the 700 funds monitored by Insider Monkey, worth about $0.4 million in stock, and Joel Greenblatt's Gotham Asset Management was right behind this move, as the fund said goodbye to about $0.2 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks similar to Aqua America Inc (NYSE:WTR). These stocks are Jones Lang LaSalle Inc (NYSE:JLL), Omega Healthcare Investors Inc (NYSE:OHI), Western Gas Equity Partners LP (NYSE:WGP), and EnLink Midstream Partners LP (NYSE:ENLK). This group of stocks' market valuations are similar to WTR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JLL,21,858022,3 OHI,12,41625,2 WGP,5,60856,1 ENLK,4,12285,-1 Average,10.5,243197,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $133 million in WTR's case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand EnLink Midstream Partners LP (NYSE:ENLK) is the least popular one with only 4 bullish hedge fund positions. Aqua America Inc (NYSE:WTR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard JLL might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.