Hedge Fund Sentiment Is Stagnant On California Water Service Group (CWT)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in California Water Service Group (NYSE:CWT) .

California Water Service Group (NYSE:CWT) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as International Speedway Corporation (NASDAQ:ISCA), Premier Inc (NASDAQ:PINC), and Depomed Inc (NASDAQ:DEPO) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, let’s take a look at the new action regarding California Water Service Group (NYSE:CWT).

What does the smart money think about California Water Service Group (NYSE:CWT)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in CWT at the beginning of this year. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ian Simm’s Impax Asset Management has the biggest position in California Water Service Group (NYSE:CWT), worth close to $56.9 million, comprising 2.6% of its total 13F portfolio. The second largest stake is held by Adage Capital Management, led by Phill Gross and Robert Atchinson, which holds a $16 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Cliff Asness’ AQR Capital Management and Jim Simons’s Renaissance Technologies, one of the largest hedge funds in the world. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as California Water Service Group (NYSE:CWT) but similarly valued. These stocks are International Speedway Corporation (NASDAQ:ISCA), Premier Inc (NASDAQ:PINC), Depomed Inc (NASDAQ:DEPO), and AMN Healthcare Services, Inc. (NYSE:AHS). This group of stocks’ market caps resemble CWT’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $80 million in CWT’s case. AMN Healthcare Services, Inc. (NYSE:AHS) is the most popular stock in this table. On the other hand International Speedway Corporation (NASDAQ:ISCA) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks California Water Service Group (NYSE:CWT) is even less popular than ISCA. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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