The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded American States Water Co (NYSE:AWR) based on those filings.
Is American States Water Co (NYSE:AWR) a superb investment today? Investors who are in the know are in a pessimistic mood. The number of long hedge fund positions went down by 2 lately. Our calculations also showed that AWR isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AWR was in 19 hedge funds' portfolios at the end of the first quarter of 2020. There were 21 hedge funds in our database with AWR holdings at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_189632" align="aligncenter" width="400"] David Harding of Winton Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to take a peek at the new hedge fund action encompassing American States Water Co (NYSE:AWR).
What have hedge funds been doing with American States Water Co (NYSE:AWR)?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AWR over the last 18 quarters. With the smart money's sentiment swirling, there exists a few notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of American States Water Co (NYSE:AWR), with a stake worth $11.6 million reported as of the end of September. Trailing Citadel Investment Group was Winton Capital Management, which amassed a stake valued at $6.3 million. Renaissance Technologies, AQR Capital Management, and D E Shaw 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 PDT Partners allocated the biggest weight to American States Water Co (NYSE:AWR), around 0.21% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to AWR.
Since American States Water Co (NYSE:AWR) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of funds that elected to cut their full holdings last quarter. At the top of the heap, Dmitry Balyasny's Balyasny Asset Management dropped the biggest stake of the 750 funds watched by Insider Monkey, totaling about $1.4 million in stock, and Farnum Brown and Adam Seitchik's Arjuna Capital was right behind this move, as the fund dumped about $1.1 million worth. These moves are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.
Let's now review hedge fund activity in other stocks similar to American States Water Co (NYSE:AWR). We will take a look at AerCap Holdings N.V. (NYSE:AER), BOK Financial Corporation (NASDAQ:BOKF), FirstCash, Inc. (NASDAQ:FCFS), and Anixter International Inc. (NYSE:AXE). All of these stocks' market caps are similar to AWR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AER,32,616402,-4 BOKF,22,145009,7 FCFS,16,107030,0 AXE,21,541008,-22 Average,22.75,352362,-4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $51 million in AWR's case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 16 bullish hedge fund positions. American States Water Co (NYSE:AWR) 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 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately AWR wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AWR investors were disappointed as the stock returned -4.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.