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Hedge Fund Darlings vs. Aqua America Inc (WTR) In 2019

Debasis Saha

Hedge funds are known to underperform the bull markets but that's not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 31% through December 23rd. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.1% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds' consensus stock picks rather than directly investing in hedge funds. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Aqua America Inc (NYSE:WTR).

Aqua America Inc (NYSE:WTR) was in 33 hedge funds' portfolios at the end of the third quarter of 2019. WTR shareholders have witnessed an increase in hedge fund sentiment of late. There were 21 hedge funds in our database with WTR positions at the end of the previous quarter. Our calculations also showed that WTR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Michael Platt BlueCrest Capital

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. Keeping this in mind let's analyze the new hedge fund action surrounding Aqua America Inc (NYSE:WTR).

What have hedge funds been doing with Aqua America Inc (NYSE:WTR)?

At the end of the third quarter, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 57% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in WTR a year ago. With the smart money's sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is WTR A Good Stock To Buy?

Among these funds, Zimmer Partners held the most valuable stake in Aqua America Inc (NYSE:WTR), which was worth $506.4 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $102.2 million worth of shares. BlueCrest Capital Mgmt., Millennium Management, and Royce & Associates were 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 Zimmer Partners allocated the biggest weight to Aqua America Inc (NYSE:WTR), around 5.51% of its 13F portfolio. Water Asset Management is also relatively very bullish on the stock, earmarking 5.15 percent of its 13F equity portfolio to WTR.

As industrywide interest jumped, specific money managers were leading the bulls' herd. ExodusPoint Capital, managed by Michael Gelband, assembled the most valuable position in Aqua America Inc (NYSE:WTR). ExodusPoint Capital had $8.1 million invested in the company at the end of the quarter. Brian Olson, Baehyun Sung, and Jamie Waters's Blackstart Capital also made a $6.2 million investment in the stock during the quarter. The other funds with brand new WTR positions are Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners, Peter J. Hark's Shelter Harbor Advisors, and Mario Gabelli's GAMCO Investors.

Let's now take a look at hedge fund activity in other stocks similar to Aqua America Inc (NYSE:WTR). These stocks are StoneCo Ltd. (NASDAQ:STNE), Apache Corporation (NYSE:APA), United Rentals, Inc. (NYSE:URI), and Liberty Media Corporation (NASDAQ:FWONK). This group of stocks' market values are similar to WTR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STNE,28,1337452,1 APA,26,692560,4 URI,54,1123521,10 FWONK,30,1915502,-2 Average,34.5,1267259,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.5 hedge funds with bullish positions and the average amount invested in these stocks was $1267 million. That figure was $833 million in WTR's case. United Rentals, Inc. (NYSE:URI) is the most popular stock in this table. On the other hand Apache Corporation (NYSE:APA) is the least popular one with only 26 bullish hedge fund positions. Aqua America Inc (NYSE:WTR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on WTR, though not to the same extent, as the stock returned 38.2% in 2019 (as of 12/23) and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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