We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Covanta Holding Corporation (NYSE:CVA) and determine whether hedge funds skillfully traded this stock.
Is Covanta Holding Corporation (NYSE:CVA) the right pick for your portfolio? Investors who are in the know were taking a pessimistic view. The number of long hedge fund positions went down by 4 lately. Covanta Holding Corporation (NYSE:CVA) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistics is 25. Our calculations also showed that CVA 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 25 hedge funds in our database with CVA positions at the end of the first quarter. 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Bernard Lambilliotte of Ecofin Ltd
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 precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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 let's check out the latest hedge fund action regarding Covanta Holding Corporation (NYSE:CVA).
How are hedge funds trading Covanta Holding Corporation (NYSE:CVA)?
At second quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CVA over the last 20 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Electron Capital Partners, managed by Jos Shaver, holds the most valuable position in Covanta Holding Corporation (NYSE:CVA). Electron Capital Partners has a $19.9 million position in the stock, comprising 2.2% of its 13F portfolio. Sitting at the No. 2 spot is Ecofin Ltd, led by Bernard Lambilliotte, holding a $13.8 million position; 7.6% of its 13F portfolio is allocated to the company. Some other peers that are bullish include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Philip Hempleman's Ardsley Partners and John A. Levin's Levin Capital Strategies. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Covanta Holding Corporation (NYSE:CVA), around 7.57% of its 13F portfolio. Electron Capital Partners is also relatively very bullish on the stock, setting aside 2.18 percent of its 13F equity portfolio to CVA.
Due to the fact that Covanta Holding Corporation (NYSE:CVA) has witnessed declining sentiment from hedge fund managers, we can see that there is a sect of funds who were dropping their positions entirely last quarter. At the top of the heap, Renaissance Technologies said goodbye to the biggest stake of the 750 funds followed by Insider Monkey, worth close to $10 million in stock. Brandon Haley's fund, Holocene Advisors, also dumped its stock, about $1.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 4 funds last quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Covanta Holding Corporation (NYSE:CVA) but similarly valued. These stocks are Sangamo Therapeutics, Inc. (NASDAQ:SGMO), Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC), TTM Technologies, Inc. (NASDAQ:TTMI), Matson Inc. (NYSE:MATX), Office Properties Income Trust (NASDAQ:OPI), and Broadmark Realty Capital Inc. (NYSE:BRMK). All of these stocks' market caps are closest to CVA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SGMO,22,88068,1 CNST,35,452665,10 TRHC,8,34469,1 TTMI,18,85469,8 MATX,9,14403,6 OPI,11,20932,1 BRMK,8,89428,-7 Average,15.9,112205,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.9 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $76 million in CVA's case. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is the most popular stock in this table. On the other hand Tabula Rasa HealthCare, Inc. (NASDAQ:TRHC) is the least popular one with only 8 bullish hedge fund positions. Covanta Holding Corporation (NYSE:CVA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CVA is 50.3. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately CVA wasn't nearly as popular as these 10 stocks and hedge funds that were betting on CVA were disappointed as the stock returned -18.3% in Q3 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 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.