We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on December 31st. We at Insider Monkey have made an extensive database of more than 835 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded Pinnacle West Capital Corporation (NYSE:PNW) based on those filings.
Is Pinnacle West Capital Corporation (NYSE:PNW) an outstanding investment now? The best stock pickers are reducing their bets on the stock. The number of long hedge fund positions retreated by 2 recently. Our calculations also showed that PNW isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). PNW was in 25 hedge funds' portfolios at the end of December. There were 27 hedge funds in our database with PNW positions at the end of the previous quarter.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_745225" align="aligncenter" width="399"] Noam Gottesman of GLG Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a look at the latest hedge fund action surrounding Pinnacle West Capital Corporation (NYSE:PNW).
What does smart money think about Pinnacle West Capital Corporation (NYSE:PNW)?
At Q4's end, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PNW over the last 18 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the most valuable position in Pinnacle West Capital Corporation (NYSE:PNW). AQR Capital Management has a $363.7 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $272.7 million position; 0.2% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions encompass Stuart J. Zimmer's Zimmer Partners, David Harding's Winton Capital Management and Noam Gottesman's GLG Partners. In terms of the portfolio weights assigned to each position Zimmer Partners allocated the biggest weight to Pinnacle West Capital Corporation (NYSE:PNW), around 1.09% of its 13F portfolio. AQR Capital Management is also relatively very bullish on the stock, setting aside 0.41 percent of its 13F equity portfolio to PNW.
Since Pinnacle West Capital Corporation (NYSE:PNW) has faced falling interest from the smart money, it's easy to see that there is a sect of funds who were dropping their positions entirely by the end of the third quarter. Intriguingly, Benjamin A. Smith's Laurion Capital Management cut the biggest stake of the 750 funds watched by Insider Monkey, valued at about $2.3 million in stock. Matthew Tewksbury's fund, Stevens Capital Management, also dumped its stock, about $0.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 2 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Pinnacle West Capital Corporation (NYSE:PNW) but similarly valued. We will take a look at Shaw Communications Inc (NYSE:SJR), ON Semiconductor Corporation (NASDAQ:ON), NRG Energy Inc (NYSE:NRG), and Booz Allen Hamilton Holding Corporation (NYSE:BAH). This group of stocks' market valuations match PNW's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SJR,12,136938,-1 ON,32,562929,7 NRG,42,1399123,-6 BAH,34,400542,-1 Average,30,624883,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30 hedge funds with bullish positions and the average amount invested in these stocks was $625 million. That figure was $818 million in PNW's case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand Shaw Communications Inc (NYSE:SJR) is the least popular one with only 12 bullish hedge fund positions. Pinnacle West Capital Corporation (NYSE:PNW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. A small number of hedge funds were also right about betting on PNW, though not to the same extent, as the stock returned -23.7% during the same time period and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.