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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Consolidated Water Co. Ltd. (NASDAQ:CWCO) to find out whether there were any major changes in hedge funds' views.
Is CWCO a good stock to buy now? Investors who are in the know were getting less bullish. The number of long hedge fund bets went down by 1 lately. Consolidated Water Co. Ltd. (NASDAQ:CWCO) was in 8 hedge funds' portfolios at the end of September. The all time high for this statistics is 9. Our calculations also showed that CWCO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 9 hedge funds in our database with CWCO holdings at the end of June.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let's take a look at the latest hedge fund action encompassing Consolidated Water Co. Ltd. (NASDAQ:CWCO).
How have hedgies been trading Consolidated Water Co. Ltd. (NASDAQ:CWCO)?
Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in CWCO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Consolidated Water Co. Ltd. (NASDAQ:CWCO) was held by Renaissance Technologies, which reported holding $7.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $1.8 million position. Other investors bullish on the company included AQR Capital Management, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Consolidated Water Co. Ltd. (NASDAQ:CWCO), around 0.02% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.01 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: PEAK6 Capital 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 none of the 750+ hedge funds tracked by Insider Monkey identified CWCO as a viable investment and initiated a position in the stock.
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. We will take a look at First Choice Bancorp (NASDAQ:FCBP), CRH Medical Corporation (NYSE:CRHM), Zosano Pharma Corp (NASDAQ:ZSAN), Chimerix Inc (NASDAQ:CMRX), Central Valley Community Bancorp (NASDAQ:CVCY), Smith Micro Software, Inc. (NASDAQ:SMSI), and Lexicon Pharmaceuticals, Inc. (NASDAQ:LXRX). 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 FCBP,2,479,1 CRHM,6,20423,-1 ZSAN,5,3474,2 CMRX,14,27330,1 CVCY,3,3500,-2 SMSI,5,2208,-2 LXRX,9,7434,-2 Average,6.3,9264,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.3 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $12 million in CWCO's case. Chimerix Inc (NASDAQ:CMRX) is the most popular stock in this table. On the other hand First Choice Bancorp (NASDAQ:FCBP) is the least popular one with only 2 bullish hedge fund positions. Consolidated Water Co. Ltd. (NASDAQ:CWCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CWCO is 55.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately CWCO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CWCO were disappointed as the stock returned 8.4% since the end of September (through 12/2) 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.