Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren't very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds' top 30 stock picks easily bested the broader market, at 6.7% compared to 2.6%, despite there being a few duds in there like Facebook (even their collective wisdom isn't perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS) was in 11 hedge funds' portfolios at the end of September. SBS shareholders have witnessed an increase in hedge fund interest lately. There were 10 hedge funds in our database with SBS holdings at the end of the previous quarter. Our calculations also showed that SBS isn't among the 30 most popular stocks among hedge funds.
In the 21st century investor’s toolkit there are a lot of formulas stock market investors can use to size up stocks. A pair of the less utilized formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the top fund managers can beat their index-focused peers by a superb margin (see the details here).
We're going to analyze the new hedge fund action regarding Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS).
What have hedge funds been doing with Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS)?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in SBS heading into this year. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS), which was worth $113.6 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $23 million worth of shares. Moreover, AQR Capital Management, Millennium Management, and Arrowstreet Capital were also bullish on Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS), allocating a large percentage of their portfolios to this stock.
As industrywide interest jumped, some big names have been driving this bullishness. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS). Arrowstreet Capital had $3.2 million invested in the company at the end of the quarter. D. E. Shaw's D E Shaw also initiated a $0.5 million position during the quarter. The other funds with brand new SBS positions are Mike Vranos's Ellington and Matthew Tewksbury's Stevens Capital Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS) but similarly valued. We will take a look at International Game Technology PLC (NYSE:IGT), Penske Automotive Group, Inc. (NYSE:PAG), Clean Harbors Inc (NYSE:CLH), and Corelogic Inc (NYSE:CLGX). This group of stocks' market caps match SBS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IGT,37,963167,2 PAG,20,94346,3 CLH,18,238648,5 CLGX,20,378350,4 Average,23.75,418628,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $419 million. That figure was $157 million in SBS's case. International Game Technology PLC (NYSE:IGT) is the most popular stock in this table. On the other hand Clean Harbors Inc (NYSE:CLH) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS) is even less popular than CLH. Considering that hedge funds aren't fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn't behind this stock. This isn't necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.