Do Hedge Funds Love Spark Energy, Inc. (SPKE)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Spark Energy, Inc. (NASDAQ:SPKE) and determine whether hedge funds skillfully traded this stock.

Spark Energy, Inc. (NASDAQ:SPKE) was in 10 hedge funds’ portfolios at the end of March. SPKE shareholders have witnessed a decrease in enthusiasm from smart money lately. There were 11 hedge funds in our database with SPKE holdings at the end of the previous quarter. Our calculations also showed that SPKE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action regarding Spark Energy, Inc. (NASDAQ:SPKE).

How are hedge funds trading Spark Energy, Inc. (NASDAQ:SPKE)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 11 hedge funds with a bullish position in SPKE a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Renaissance Technologies, holds the biggest position in Spark Energy, Inc. (NASDAQ:SPKE). Renaissance Technologies has a $6.3 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers with similar optimism include D. E. Shaw’s D E Shaw, Chuck Royce’s Royce & Associates and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Ardsley Partners allocated the biggest weight to Spark Energy, Inc. (NASDAQ:SPKE), around 0.07% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to SPKE.

Due to the fact that Spark Energy, Inc. (NASDAQ:SPKE) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of funds that slashed their full holdings last quarter. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors dumped the largest stake of all the hedgies followed by Insider Monkey, totaling close to $0.1 million in stock, and Michael Gelband’s ExodusPoint Capital was right behind this move, as the fund dumped about $0.1 million worth. These transactions are interesting, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Spark Energy, Inc. (NASDAQ:SPKE) but similarly valued. We will take a look at Siebert Financial Corp. (NASDAQ:SIEB), Home Bancorp, Inc. (NASDAQ:HBCP), Greenlight Capital Re, Ltd. (NASDAQ:GLRE), and Southern First Bancshares, Inc. (NASDAQ:SFST). This group of stocks’ market caps are closest to SPKE’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $10 million in SPKE’s case. Greenlight Capital Re, Ltd. (NASDAQ:GLRE) is the most popular stock in this table. On the other hand Siebert Financial Corp. (NASDAQ:SIEB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Spark Energy, Inc. (NASDAQ:SPKE) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately SPKE wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on SPKE were disappointed as the stock returned 15.1% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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