Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space.
Hedge fund interest in American States Water Co (NYSE:AWR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Strategic Education, Inc. (NASDAQ:STRA), Simpson Manufacturing Co, Inc. (NYSE:SSD), and Valmont Industries, Inc. (NYSE:VMI) to gather more data points.
In the eyes of most market participants, hedge funds are assumed to be worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds trading today, Our researchers look at the crème de la crème of this club, approximately 750 funds. These investment experts shepherd most of all hedge funds' total asset base, and by observing their top stock picks, Insider Monkey has discovered various investment strategies that have historically outperformed Mr. Market. Insider Monkey's flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.
Let's go over the recent hedge fund action encompassing American States Water Co (NYSE:AWR).
What does the smart money think about American States Water Co (NYSE:AWR)?
At the end of the fourth quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the second quarter of 2018. On the other hand, there were a total of 8 hedge funds with a bullish position in AWR a year ago. 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, Renaissance Technologies held the most valuable stake in American States Water Co (NYSE:AWR), which was worth $32.2 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $17.3 million worth of shares. Moreover, GLG Partners, Millennium Management, and Two Sigma Advisors were also bullish on American States Water Co (NYSE:AWR), allocating a large percentage of their portfolios to this stock.
Seeing as American States Water Co (NYSE:AWR) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few funds that elected to cut their entire stakes heading into Q3. It's worth mentioning that Matt Diserio and Disque Deane Jr.'s Water Asset Management cut the biggest investment of the 700 funds watched by Insider Monkey, worth about $2.1 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also cut its stock, about $0.4 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to American States Water Co (NYSE:AWR). We will take a look at Strategic Education, Inc. (NASDAQ:STRA), Simpson Manufacturing Co, Inc. (NYSE:SSD), Valmont Industries, Inc. (NYSE:VMI), and CNO Financial Group Inc (NYSE:CNO). This group of stocks' market values match AWR's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STRA,12,220516,-3 SSD,17,189870,0 VMI,18,203426,1 CNO,11,104672,-3 Average,14.5,179621,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $68 million in AWR's case. Valmont Industries, Inc. (NYSE:VMI) is the most popular stock in this table. On the other hand CNO Financial Group Inc (NYSE:CNO) is the least popular one with only 11 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 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately AWR wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); AWR investors were disappointed as the stock returned 2.7% 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.