We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Sunnova Energy International Inc. (NYSE:NOVA).
Sunnova Energy International Inc. (NYSE:NOVA) was in 9 hedge funds' portfolios at the end of September. NOVA has seen an increase in hedge fund sentiment in recent months. There were 0 hedge funds in our database with NOVA positions at the end of the previous quarter. Our calculations also showed that NOVA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_340081" align="alignnone" width="600"] Phill Gross of Adage Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a look at the new hedge fund action regarding Sunnova Energy International Inc. (NYSE:NOVA).
What does smart money think about Sunnova Energy International Inc. (NYSE:NOVA)?
Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock. This is the first quarter we have hedge fund holdings data regarding NOVA.
Of the funds tracked by Insider Monkey, Magnetar Capital, managed by Alec Litowitz and Ross Laser, holds the largest position in Sunnova Energy International Inc. (NYSE:NOVA). Magnetar Capital has a $24.4 million position in the stock, comprising 0.6% of its 13F portfolio. The second most bullish fund manager is Phill Gross and Robert Atchinson of Adage Capital Management, with a $15.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish contain Todd J. Kantor's Encompass Capital Advisors, Clint Carlson's Carlson Capital and Anand Parekh's Alyeska Investment Group. In terms of the portfolio weights assigned to each position Magnetar Capital allocated the biggest weight to Sunnova Energy International Inc. (NYSE:NOVA), around 0.62% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, dishing out 0.59 percent of its 13F equity portfolio to NOVA.
With a general bullishness amongst the heavyweights, some big names were leading the bulls' herd. Magnetar Capital, managed by Alec Litowitz and Ross Laser, initiated the biggest position in Sunnova Energy International Inc. (NYSE:NOVA). Magnetar Capital had $24.4 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $15.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Todd J. Kantor's Encompass Capital Advisors, Clint Carlson's Carlson Capital, and Anand Parekh's Alyeska Investment Group.
Let's now review hedge fund activity in other stocks similar to Sunnova Energy International Inc. (NYSE:NOVA). These stocks are CNX Midstream Partners LP (NYSE:CNXM), BrightSphere Investment Group plc (NYSE:BSIG), Corindus Vascular Robotics Inc (NYSE:CVRS), and Y-mAbs Therapeutics, Inc. (NASDAQ:YMAB). All of these stocks' market caps are closest to NOVA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CNXM,6,13254,1 BSIG,21,274795,2 CVRS,21,291630,12 YMAB,8,60479,1 Average,14,160040,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $61 million in NOVA's case. BrightSphere Investment Group plc (NYSE:BSIG) is the most popular stock in this table. On the other hand CNX Midstream Partners LP (NYSE:CNXM) is the least popular one with only 6 bullish hedge fund positions. Sunnova Energy International Inc. (NYSE:NOVA) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NOVA wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NOVA investors were disappointed as the stock returned -4.4% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.