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Did Hedge Funds Drop The Ball On Atmos Energy Corporation (ATO) ?

Abigail Fisher

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Atmos Energy Corporation (NYSE:ATO).

Atmos Energy Corporation (NYSE:ATO) was in 14 hedge funds' portfolios at the end of the second quarter of 2019. ATO shareholders have witnessed a decrease in hedge fund sentiment recently. There were 20 hedge funds in our database with ATO holdings at the end of the previous quarter. Our calculations also showed that ATO isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

ATO_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to view the fresh hedge fund action regarding Atmos Energy Corporation (NYSE:ATO).

What have hedge funds been doing with Atmos Energy Corporation (NYSE:ATO)?

At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in ATO a year ago. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

[caption id="attachment_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/caption]

Jonathan Barrett Luminus Management

More specifically, Luminus Management was the largest shareholder of Atmos Energy Corporation (NYSE:ATO), with a stake worth $94.3 million reported as of the end of March. Trailing Luminus Management was Citadel Investment Group, which amassed a stake valued at $86.1 million. AQR Capital Management, Carlson Capital, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.

Seeing as Atmos Energy Corporation (NYSE:ATO) has witnessed a decline in interest from the smart money, it's easy to see that there lies a certain "tier" of hedge funds who were dropping their positions entirely by the end of the second quarter. At the top of the heap, Peter J. Hark's Shelter Harbor Advisors cut the largest investment of the "upper crust" of funds watched by Insider Monkey, totaling close to $7.7 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also cut its stock, about $3.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 6 funds by the end of the second quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Atmos Energy Corporation (NYSE:ATO) but similarly valued. These stocks are Kansas City Southern (NYSE:KSU), Vornado Realty Trust (NYSE:VNO), Elanco Animal Health Incorporated (NYSE:ELAN), and Ally Financial Inc (NYSE:ALLY). This group of stocks' market values are closest to ATO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KSU,26,370990,0 VNO,27,534294,-3 ELAN,27,520304,-6 ALLY,43,2105450,8 Average,30.75,882760,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $883 million. That figure was $398 million in ATO's case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Kansas City Southern (NYSE:KSU) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Atmos Energy Corporation (NYSE:ATO) is even less popular than KSU. Hedge funds clearly dropped the ball on ATO as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on ATO as the stock returned 8.4% during the third quarter and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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