The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded ALLETE Inc (NYSE:ALE) and determine whether the smart money was really smart about this stock.
Is ALLETE Inc (NYSE:ALE) an exceptional investment right now? Money managers were taking a bullish view. The number of bullish hedge fund bets improved by 7 lately. ALLETE Inc (NYSE:ALE) was in 25 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ALE isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with ALE positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
According to most stock holders, hedge funds are assumed to be unimportant, old investment tools of yesteryear. While there are more than 8000 funds with their doors open at present, Our researchers choose to focus on the elite of this club, around 850 funds. These investment experts orchestrate most of the smart money's total capital, and by keeping track of their finest stock picks, Insider Monkey has brought to light various investment strategies that have historically outpaced the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Phillip Gross of Adage Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to analyze the new hedge fund action surrounding ALLETE Inc (NYSE:ALE).
How have hedgies been trading ALLETE Inc (NYSE:ALE)?
At Q2's end, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in ALE a year ago. With the smart money's sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
The largest stake in ALLETE Inc (NYSE:ALE) was held by Polaris Capital Management, which reported holding $36.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $27.9 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and AQR Capital Management. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to ALLETE Inc (NYSE:ALE), around 1.81% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, setting aside 1.6 percent of its 13F equity portfolio to ALE.
As one would reasonably expect, some big names have jumped into ALLETE Inc (NYSE:ALE) headfirst. Adage Capital Management, managed by Phill Gross and Robert Atchinson, initiated the biggest position in ALLETE Inc (NYSE:ALE). Adage Capital Management had $5.5 million invested in the company at the end of the quarter. Benjamin A. Smith's Laurion Capital Management also initiated a $1 million position during the quarter. The other funds with brand new ALE positions are Dmitry Balyasny's Balyasny Asset Management, Peter Algert and Kevin Coldiron's Algert Coldiron Investors, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's now take a look at hedge fund activity in other stocks similar to ALLETE Inc (NYSE:ALE). These stocks are AAON, Inc. (NASDAQ:AAON), Acacia Communications, Inc. (NASDAQ:ACIA), Cimarex Energy Co (NYSE:XEC), Navistar International Corp (NYSE:NAV), STAAR Surgical Company (NASDAQ:STAA), Goosehead Insurance, Inc. (NASDAQ:GSHD), and FirstCash, Inc. (NASDAQ:FCFS). This group of stocks' market valuations are similar to ALE's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AAON,15,26745,4 ACIA,34,959611,12 XEC,39,556800,4 NAV,33,1245849,-3 STAA,20,920886,-1 GSHD,15,114944,4 FCFS,22,144073,6 Average,25.4,566987,3.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $567 million. That figure was $119 million in ALE's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 15 bullish hedge fund positions. ALLETE Inc (NYSE:ALE) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ALE is 60.8. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately ALE wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ALE investors were disappointed as the stock returned -4.6% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.