Last year's fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 37.4% in 2019 (through the end of November) and outperformed the S&P 500 ETF by 9.9 percentage points. We are done processing the latest 13F filings and in this article we will study how hedge fund sentiment towards Atmos Energy Corporation (NYSE:ATO) changed during the first quarter.
Is Atmos Energy Corporation (NYSE:ATO) a cheap investment right now? Investors who are in the know are taking an optimistic view. The number of bullish hedge fund bets rose by 5 recently. Our calculations also showed that ATO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
[caption id="attachment_728376" align="aligncenter" width="473"] Jonathan Barrett of Luminus Management[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the new hedge fund action regarding Atmos Energy Corporation (NYSE:ATO).
How are hedge funds trading Atmos Energy Corporation (NYSE:ATO)?
At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 36% from the second quarter of 2019. On the other hand, there were a total of 15 hedge funds with a bullish position in ATO a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Atmos Energy Corporation (NYSE:ATO), which was worth $117.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $85.1 million worth of shares. Luminus Management, Carlson Capital, and Millennium Management 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 Luminus Management allocated the biggest weight to Atmos Energy Corporation (NYSE:ATO), around 1.68% of its 13F portfolio. Centenus Global Management is also relatively very bullish on the stock, setting aside 0.88 percent of its 13F equity portfolio to ATO.
As one would reasonably expect, key hedge funds have jumped into Atmos Energy Corporation (NYSE:ATO) headfirst. Winton Capital Management, managed by David Harding, established the most outsized position in Atmos Energy Corporation (NYSE:ATO). Winton Capital Management had $8.4 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Donald Sussman's Paloma Partners, and Matthew Tewksbury's Stevens Capital Management.
Let's go over hedge fund activity in other stocks similar to Atmos Energy Corporation (NYSE:ATO). These stocks are Cna Financial Corporation (NYSE:CNA), The Liberty SiriusXM Group (NASDAQ:LSXMK), Kansas City Southern (NYSE:KSU), and Discovery, Inc. (NASDAQ:DISCK). All of these stocks' market caps are similar to ATO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNA,14,86638,2 LSXMK,44,2852514,2 KSU,28,550900,2 DISCK,30,727071,0 Average,29,1054281,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1054 million. That figure was $408 million in ATO's case. The Liberty SiriusXM Group (NASDAQ:LSXMK) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 14 bullish hedge fund positions. Atmos Energy Corporation (NYSE:ATO) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ATO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ATO investors were disappointed as the stock returned -5.6% during the first two months of the fourth quarter 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 in Q4.
Disclosure: None. This article was originally published at Insider Monkey.