How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding The York Water Company (NASDAQ:YORW) and determine whether hedge funds had an edge regarding this stock.
The York Water Company (NASDAQ:YORW) was in 11 hedge funds’ portfolios at the end of the first quarter of 2020. YORW shareholders have witnessed an increase in support from the world’s most elite money managers recently. There were 8 hedge funds in our database with YORW holdings at the end of the previous quarter. Our calculations also showed that YORW 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.
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’ 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 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.
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. Now let’s take a look at the key hedge fund action regarding The York Water Company (NASDAQ:YORW).
What does smart money think about The York Water Company (NASDAQ:YORW)?
At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards YORW over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the most valuable position in The York Water Company (NASDAQ:YORW), worth close to $13.7 million, comprising less than 0.1%% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, led by Chuck Royce, holding a $5.8 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish encompass Mario Gabelli’s GAMCO Investors, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to The York Water Company (NASDAQ:YORW), around 0.36% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.08 percent of its 13F equity portfolio to YORW.
Consequently, some big names have jumped into The York Water Company (NASDAQ:YORW) headfirst. Millennium Management, managed by Israel Englander, created the biggest position in The York Water Company (NASDAQ:YORW). Millennium Management had $1.8 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also made a $0.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Muller’s PDT Partners and David Harding’s Winton Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The York Water Company (NASDAQ:YORW) but similarly valued. These stocks are Sonic Automotive Inc (NYSE:SAH), Community Trust Bancorp, Inc. (NASDAQ:CTBI), Silvercorp Metals Inc. (NYSE:SVM), and Bryn Mawr Bank Corp. (NASDAQ:BMTC). All of these stocks’ market caps are closest to YORW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAH | 14 | 17995 | -2 |
| CTBI | 6 | 13575 | 0 |
| SVM | 5 | 31995 | -3 |
| BMTC | 10 | 32250 | 1 |
| Average | 8.75 | 23954 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $24 million. That figure was $26 million in YORW’s case. Sonic Automotive Inc (NYSE:SAH) is the most popular stock in this table. On the other hand Silvercorp Metals Inc. (NYSE:SVM) is the least popular one with only 5 bullish hedge fund positions. The York Water Company (NASDAQ:YORW) is not the most popular stock in this group but hedge fund interest is still above average. 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 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 but beat the market by 15.5 percentage points. Unfortunately YORW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on YORW were disappointed as the stock returned 10.8% during the same time period 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
