Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether American States Water Co (NYSE:AWR) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
American States Water Co (NYSE:AWR) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that AWR 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).
If you’d ask most investors, hedge funds are perceived as unimportant, old investment tools of years past. While there are over 8000 funds trading today, We look at the aristocrats of this group, approximately 850 funds. It is estimated that this group of investors preside over the lion’s share of all hedge funds’ total capital, and by following their inimitable equity investments, Insider Monkey has unsheathed many investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. With all of this in mind let’s take a gander at the key hedge fund action regarding American States Water Co (NYSE:AWR).
What have hedge funds been doing with American States Water Co (NYSE:AWR)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 24% from the third quarter of 2019. By comparison, 12 hedge funds held shares or bullish call options in AWR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American States Water Co (NYSE:AWR) was held by Winton Capital Management, which reported holding $12.3 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $7.3 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and AQR Capital Management. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to American States Water Co (NYSE:AWR), around 0.81% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, setting aside 0.17 percent of its 13F equity portfolio to AWR.
As one would reasonably expect, key money managers were leading the bulls’ herd. Millennium Management, managed by Israel Englander, initiated the most valuable position in American States Water Co (NYSE:AWR). Millennium Management had $5.8 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $3 million position during the quarter. The following funds were also among the new AWR investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Louis Navellier’s Navellier & Associates, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks similar to American States Water Co (NYSE:AWR). These stocks are Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH), Kennedy-Wilson Holdings Inc (NYSE:KW), and Allogene Therapeutics, Inc. (NASDAQ:ALLO). This group of stocks’ market caps are similar to AWR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KOF | 10 | 493100 | -3 |
| DCPH | 28 | 699426 | 2 |
| KW | 17 | 508765 | -2 |
| ALLO | 12 | 114946 | 6 |
| Average | 16.75 | 454059 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $55 million in AWR’s case. Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) is the most popular stock in this table. On the other hand Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) is the least popular one with only 10 bullish hedge fund positions. American States Water Co (NYSE:AWR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on AWR as the stock returned -10.8% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
