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Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 8.7% through October 26th. Forty percent of the S&P 500 constituents were down more than 10%. The average return of a randomly picked stock in the index is -9.5%. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 25 most popular S&P 500 stocks among hedge funds had an average loss of 8.8%. In this article, we will take a look at what hedge funds think about Atlantica Yield plc (NASDAQ:AY).
Is Atlantica Yield plc (NASDAQ:AY) the right investment to pursue these days? The best stock pickers are becoming more confident. The number of bullish hedge fund bets improved by 1 lately. Our calculations also showed that AY isn't among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
Let's check out the key hedge fund action regarding Atlantica Yield plc (NASDAQ:AY).
What does the smart money think about Atlantica Yield plc (NASDAQ:AY)?
Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in AY at the beginning of this year. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Appaloosa Management LP held the most valuable stake in Atlantica Yield plc (NASDAQ:AY), which was worth $69 million at the end of the third quarter. On the second spot was Centerbridge Partners which amassed $66.9 million worth of shares. Moreover, Melqart Asset Management, Glendon Capital Management, and GLG Partners were also bullish on Atlantica Yield plc (NASDAQ:AY), allocating a large percentage of their portfolios to this stock.
There weren't any hedge funds initiating brand new positions in the stock during the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Atlantica Yield plc (NASDAQ:AY) but similarly valued. These stocks are California Water Service Group (NYSE:CWT), Central Garden & Pet Co (NASDAQ:CENT), Denali Therapeutics Inc. (NASDAQ:DNLI), and LegacyTexas Financial Group Inc (NASDAQ:LTXB). All of these stocks' market caps are similar to AY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWT,3,3420,-3 CENT,20,158186,1 DNLI,4,8928,1 LTXB,14,70644,2 Average,10.25,60295,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $60 million. That figure was $327 million in AY's case. Central Garden & Pet Co (NASDAQ:CENT) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 3 bullish hedge fund positions. Atlantica Yield plc (NASDAQ:AY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. In this regard CENT might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
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