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Hedge Funds Have Never Been This Bullish On Algonquin Power & Utilities Corp. (AQN)

Reymerlyn Martin

"October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being '08 and the Crash of '87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the '87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March '09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher." This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

Is Algonquin Power & Utilities Corp. (NYSE:AQN) a bargain? Prominent investors are betting on the stock. The number of bullish hedge fund positions advanced by 3 recently. Our calculations also showed that AQN isn't among the 30 most popular stocks among hedge funds. AQN was in 9 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 6 hedge funds in our database with AQN positions at the end of the previous quarter.

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 flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

We're going to take a peek at the latest hedge fund action regarding Algonquin Power & Utilities Corp. (NYSE:AQN).

What have hedge funds been doing with Algonquin Power & Utilities Corp. (NYSE:AQN)?

Heading into the first quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AQN over the last 14 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

AQN_apr2019

More specifically, Renaissance Technologies was the largest shareholder of Algonquin Power & Utilities Corp. (NYSE:AQN), with a stake worth $12.6 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $6.9 million. Zimmer Partners, Signition LP, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names have been driving this bullishness. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most valuable position in Algonquin Power & Utilities Corp. (NYSE:AQN). Two Sigma Advisors had $6.9 million invested in the company at the end of the quarter. Stuart J. Zimmer's Zimmer Partners also made a $2.9 million investment in the stock during the quarter. The following funds were also among the new AQN investors: Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Matthew Tewksbury's Stevens Capital Management, and Cliff Asness's AQR Capital Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Algonquin Power & Utilities Corp. (NYSE:AQN) but similarly valued. We will take a look at New Residential Investment Corp (NYSE:NRZ), The Chemours Company (NYSE:CC), EQT Corporation (NYSE:EQT), and Owens Corning (NYSE:OC). This group of stocks' market values are closest to AQN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NRZ,25,144361,9 CC,28,496631,-3 EQT,44,1317248,-1 OC,40,838801,8 Average,34.25,699260,3.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $699 million. That figure was $25 million in AQN's case. EQT Corporation (NYSE:EQT) is the most popular stock in this table. On the other hand New Residential Investment Corp (NYSE:NRZ) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Algonquin Power & Utilities Corp. (NYSE:AQN) is even less popular than NRZ. Hedge funds dodged a bullet by taking a bearish stance towards AQN. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AQN wasn't nearly as popular as these 15 stock (hedge fund sentiment was very bearish); AQN investors were disappointed as the stock returned 15.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

Disclosure: None. This article was originally published at Insider Monkey.

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