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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Ormat Technologies, Inc. (NYSE:ORA)? The smart money sentiment can provide an answer to this question.
Is Ormat Technologies, Inc. (NYSE:ORA) a good investment today? Hedge funds are becoming less hopeful. The number of bullish hedge fund bets went down by 1 recently. Our calculations also showed that ORA 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). ORA was in 16 hedge funds' portfolios at the end of the fourth quarter of 2019. There were 17 hedge funds in our database with ORA 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 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 S&P 500 ETFs by 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 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.
[caption id="attachment_30600" align="aligncenter" width="399"] Bruce Kovner of Caxton Associates LP[/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 go over the latest hedge fund action encompassing Ormat Technologies, Inc. (NYSE:ORA).
How are hedge funds trading Ormat Technologies, Inc. (NYSE:ORA)?
Heading into the first quarter of 2020, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ORA over the last 18 quarters. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Ormat Technologies, Inc. (NYSE:ORA) was held by Impax Asset Management, which reported holding $108.3 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $56.2 million position. Other investors bullish on the company included GLG Partners, GAMCO Investors, and Brasada Capital Management. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Ormat Technologies, Inc. (NYSE:ORA), around 1.21% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, designating 0.79 percent of its 13F equity portfolio to ORA.
Since Ormat Technologies, Inc. (NYSE:ORA) has experienced bearish sentiment from the smart money, it's safe to say that there was a specific group of funds who sold off their entire stakes in the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital said goodbye to the biggest investment of the 750 funds watched by Insider Monkey, totaling close to $2.1 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund cut about $1.9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 1 funds in the third quarter.
Let's now review hedge fund activity in other stocks similar to Ormat Technologies, Inc. (NYSE:ORA). We will take a look at Nektar Therapeutics (NASDAQ:NKTR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Viper Energy Partners LP (NASDAQ:VNOM), and First Hawaiian, Inc. (NASDAQ:FHB). This group of stocks' market values resemble ORA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NKTR,26,230140,7 AXSM,25,576913,9 VNOM,16,102830,1 FHB,18,170316,-2 Average,21.25,270050,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $270 million. That figure was $193 million in ORA's case. Nektar Therapeutics (NASDAQ:NKTR) is the most popular stock in this table. On the other hand Viper Energy Partners LP (NASDAQ:VNOM) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Ormat Technologies, Inc. (NYSE:ORA) is even less popular than VNOM. Hedge funds clearly dropped the ball on ORA as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on ORA as the stock returned -10% during the same time period and outperformed the market by an even larger margin. 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.