Hedge Funds Are Piling Into Algonquin Power & Utilities Corp. (AQN)

In this article we are going to use hedge fund sentiment as a tool and determine whether Algonquin Power & Utilities Corp. (NYSE:AQN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Algonquin Power & Utilities Corp. (NYSE:AQN) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. Algonquin Power & Utilities Corp. (NYSE:AQN) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AQN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Michael Platt of BlueCrest Capital Mgmt.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s take a gander at the recent hedge fund action regarding Algonquin Power & Utilities Corp. (NYSE:AQN).

Do Hedge Funds Think AQN Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 140% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AQN over the last 24 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

The largest stake in Algonquin Power & Utilities Corp. (NYSE:AQN) was held by D E Shaw, which reported holding $56.9 million worth of stock at the end of June. It was followed by Highbridge Capital Management with a $53 million position. Other investors bullish on the company included Adage Capital Management, Citadel Investment Group, and BlueCrest Capital Mgmt.. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Algonquin Power & Utilities Corp. (NYSE:AQN), around 4.13% of its 13F portfolio. Quaero Capital is also relatively very bullish on the stock, setting aside 1.98 percent of its 13F equity portfolio to AQN.

As industrywide interest jumped, key hedge funds were leading the bulls’ herd. D E Shaw, managed by D. E. Shaw, assembled the biggest position in Algonquin Power & Utilities Corp. (NYSE:AQN). D E Shaw had $56.9 million invested in the company at the end of the quarter. Highbridge Capital Management also made a $53 million investment in the stock during the quarter. The following funds were also among the new AQN investors: Phill Gross and Robert Atchinson’s Adage Capital Management, Ken Griffin’s Citadel Investment Group, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..

Let’s go over hedge fund activity in other stocks similar to Algonquin Power & Utilities Corp. (NYSE:AQN). These stocks are BridgeBio Pharma, Inc. (NASDAQ:BBIO), CAE, Inc. (NYSE:CAE), Smartsheet Inc. (NYSE:SMAR), Kimco Realty Corp (NYSE:KIM), Globant SA (NYSE:GLOB), Service Corporation International (NYSE:SCI), and Phillips 66 Partners LP (NYSE:PSXP). This group of stocks’ market valuations are closest to AQN’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $801 million. That figure was $311 million in AQN’s case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. Algonquin Power & Utilities Corp. (NYSE:AQN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AQN is 61.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately AQN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AQN were disappointed as the stock returned 2.9% since the end of June (through 10/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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