Is Consolidated Water Co. Ltd. (NASDAQ:CWCO) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Consolidated Water Co. Ltd. (NASDAQ:CWCO) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. At the end of this article we will also compare CWCO to other stocks including Gladstone Land Corporation (NASDAQ:LAND), Westwood Holdings Group, Inc. (NYSE:WHG), and Biglari Holdings Inc (NYSE:BH) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most market participants, hedge funds are viewed as underperforming, old investment tools of yesteryear. While there are over 8000 funds in operation at the moment, We choose to focus on the elite of this group, about 750 funds. These hedge fund managers manage the majority of the hedge fund industry's total capital, and by shadowing their best stock picks, Insider Monkey has figured out several investment strategies that have historically outperformed the market. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind let's take a glance at the recent hedge fund action encompassing Consolidated Water Co. Ltd. (NASDAQ:CWCO).
What have hedge funds been doing with Consolidated Water Co. Ltd. (NASDAQ:CWCO)?
At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CWCO over the last 17 quarters. With the smart money's sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Consolidated Water Co. Ltd. (NASDAQ:CWCO), with a stake worth $9.1 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $0.7 million. Citadel Investment Group was also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Consolidated Water Co. Ltd. (NASDAQ:CWCO), around 0.01% of its 13F portfolio. Two Sigma Advisors is also relatively very bullish on the stock, designating 0.0018 percent of its 13F equity portfolio to CWCO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Consolidated Water Co. Ltd. (NASDAQ:CWCO) but similarly valued. These stocks are Gladstone Land Corporation (NASDAQ:LAND), Westwood Holdings Group, Inc. (NYSE:WHG), Biglari Holdings Inc (NYSE:BH), and Cumulus Media Inc (NASDAQ:CMLS). This group of stocks' market caps match CWCO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LAND,6,6424,0 WHG,10,43281,-1 BH,10,37782,0 CMLS,12,85391,3 Average,9.5,43220,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $10 million in CWCO's case. Cumulus Media Inc (NASDAQ:CMLS) is the most popular stock in this table. On the other hand Gladstone Land Corporation (NASDAQ:LAND) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Consolidated Water Co. Ltd. (NASDAQ:CWCO) is even less popular than LAND. Hedge funds dodged a bullet by taking a bearish stance towards CWCO. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately CWCO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CWCO investors were disappointed as the stock returned 1.2% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.