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Hedge Funds Have Never Been More Bullish On Avista Corp (AVA)

Nina Todic

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients' money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.

Hedge fund interest in Avista Corp (NYSE:AVA) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare AVA to other stocks including Vishay Intertechnology, Inc. (NYSE:VSH), Sprouts Farmers Market Inc (NASDAQ:SFM), and WNS (Holdings) Limited (NYSE:WNS) to get a better sense of its popularity.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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.

D. E. Shaw

Let's take a look at the latest hedge fund action regarding Avista Corp (NYSE:AVA).

What does the smart money think about Avista Corp (NYSE:AVA)?

Heading into the second quarter of 2019, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AVA over the last 15 quarters. With hedge funds' capital changing hands, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with AVA Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons's Renaissance Technologies has the number one position in Avista Corp (NYSE:AVA), worth close to $53.5 million, comprising less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is Millennium Management, managed by Israel Englander, which holds a $38.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism encompass D. E. Shaw's D E Shaw, Noam Gottesman's GLG Partners and Alec Litowitz and Ross Laser's Magnetar Capital.

Since Avista Corp (NYSE:AVA) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedgies that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, Richard Gerson and Navroz D. Udwadia's Falcon Edge Capital cut the largest investment of the "upper crust" of funds followed by Insider Monkey, worth an estimated $46.5 million in stock. Steve Cohen's fund, Point72 Asset Management, also dropped its stock, about $6.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to Avista Corp (NYSE:AVA). We will take a look at Vishay Intertechnology (NYSE:VSH), Sprouts Farmers Market Inc (NASDAQ:SFM), WNS (Holdings) Limited (NYSE:WNS), and Fox Factory Holding Corp (NASDAQ:FOXF). All of these stocks' market caps resemble AVA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VSH,21,339355,2 SFM,21,253525,-1 WNS,15,196783,-1 FOXF,14,39357,3 Average,17.75,207255,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $176 million in AVA's case. Vishay Intertechnology (NYSE:VSH) is the most popular stock in this table. On the other hand Fox Factory Holding Corp (NASDAQ:FOXF) is the least popular one with only 14 bullish hedge fund positions. Avista Corp (NYSE:AVA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on AVA as the stock returned 2.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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