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Were Hedge Funds Right About Middlesex Water Company (MSEX)?

Abigail Fisher

Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a closer look at hedge fund sentiment surrounding Middlesex Water Company (NASDAQ:MSEX).

Middlesex Water Company (NASDAQ:MSEX) has experienced a decrease in support from the world's most elite money managers of late. MSEX was in 9 hedge funds' portfolios at the end of December. There were 10 hedge funds in our database with MSEX positions at the end of the previous quarter. Our calculations also showed that MSEX 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).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_375529" align="aligncenter" width="399"] Mario Gabelli of GAMCO Investors[/caption]

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with high accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to check out the new hedge fund action surrounding Middlesex Water Company (NASDAQ:MSEX).

Hedge fund activity in Middlesex Water Company (NASDAQ:MSEX)

At the end of the fourth quarter, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in MSEX a year ago. So, let's review 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 Middlesex Water Company (NASDAQ:MSEX), which was worth $34.5 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $8.4 million worth of shares. GAMCO Investors, PEAK6 Capital Management, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Middlesex Water Company (NASDAQ:MSEX), around 0.09% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to MSEX.

Seeing as Middlesex Water Company (NASDAQ:MSEX) has witnessed a decline in interest from the smart money, we can see that there is a sect of hedge funds that decided to sell off their positions entirely heading into Q4. At the top of the heap, Noam Gottesman's GLG Partners dumped the largest investment of all the hedgies monitored by Insider Monkey, totaling close to $0.6 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund cut about $0.4 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 1 funds heading into Q4.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Middlesex Water Company (NASDAQ:MSEX) but similarly valued. We will take a look at TG Therapeutics Inc (NASDAQ:TGTX), M/I Homes Inc (NYSE:MHO), Realogy Holdings Corp (NYSE:RLGY), and Sculptor Capital Management, Inc. (NYSE:SCU). This group of stocks' market valuations match MSEX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TGTX,22,320444,3 MHO,20,71843,1 RLGY,30,478410,5 SCU,12,85038,1 Average,21,238934,2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $239 million. That figure was $52 million in MSEX's case. Realogy Holdings Corp (NYSE:RLGY) is the most popular stock in this table. On the other hand Sculptor Capital Management, Inc. (NYSE:SCU) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Middlesex Water Company (NASDAQ:MSEX) is even less popular than SCU. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but managed to beat the market by 12.9 percentage points. A small number of hedge funds were also right about betting on MSEX, though not to the same extent, as the stock returned -5.2% during the same time period and outperformed the market as well. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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