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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 Avista Corp (NYSE:AVA) and determine whether the smart money was really smart about this stock.
Is Avista Corp (NYSE:AVA) going to take off soon? Prominent investors were becoming more confident. The number of long hedge fund bets inched up by 3 in recent months. Avista Corp (NYSE:AVA) was in 21 hedge funds' portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AVA 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).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 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.
David Harding of Winton Capital Management
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 junior gold mining stock. We are also checking out this lithium company which could 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. Keeping this in mind we're going to go over the new hedge fund action regarding Avista Corp (NYSE:AVA).
How are hedge funds trading Avista Corp (NYSE:AVA)?
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 17% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in AVA a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the biggest position in Avista Corp (NYSE:AVA), worth close to $86.7 million, comprising 0.1% of its total 13F portfolio. On Renaissance Technologies's heels is D. E. Shaw of D E Shaw, with a $3.9 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Israel Englander's Millennium Management, Greg Eisner's Engineers Gate Manager and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position Engineers Gate Manager allocated the biggest weight to Avista Corp (NYSE:AVA), around 0.11% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to AVA.
Now, key hedge funds were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most outsized position in Avista Corp (NYSE:AVA). Millennium Management had $2.8 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $1 million investment in the stock during the quarter. The following funds were also among the new AVA investors: Paul Tudor Jones's Tudor Investment Corp, Dmitry Balyasny's Balyasny Asset Management, and Thomas Bailard's Bailard Inc.
Let's also examine hedge fund activity in other stocks similar to Avista Corp (NYSE:AVA). We will take a look at Tegna Inc (NYSE:TGNA), Brady Corp (NYSE:BRC), Nordstrom, Inc. (NYSE:JWN), Antero Midstream Corp (NYSE:AM), Commercial Metals Company (NYSE:CMC), 2U Inc (NASDAQ:TWOU), and Franklin Electric Co., Inc. (NASDAQ:FELE). This group of stocks' market valuations match AVA's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TGNA,29,318465,0 BRC,17,146373,7 JWN,28,182227,3 AM,14,116661,0 CMC,22,153574,3 TWOU,24,285907,10 FELE,15,176038,-1 Average,21.3,197035,3.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.3 hedge funds with bullish positions and the average amount invested in these stocks was $197 million. That figure was $106 million in AVA's case. Tegna Inc (NYSE:TGNA) is the most popular stock in this table. On the other hand Antero Midstream Corp (NYSE:AM) is the least popular one with only 14 bullish hedge fund positions. Avista Corp (NYSE:AVA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AVA is 61.3. 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 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 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AVA wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AVA investors were disappointed as the stock returned -5.2% in the third 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.
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Disclosure: None. This article was originally published at Insider Monkey.