Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Powell Industries, Inc. (NASDAQ:POWL).
Powell Industries, Inc. (NASDAQ:POWL) was in 16 hedge funds’ portfolios at the end of the third quarter of 2019. POWL investors should pay attention to an increase in hedge fund sentiment recently. There were 11 hedge funds in our database with POWL holdings at the end of the previous quarter. Our calculations also showed that POWL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s view the fresh hedge fund action encompassing Powell Industries, Inc. (NASDAQ:POWL).
How have hedgies been trading Powell Industries, Inc. (NASDAQ:POWL)?
At Q3’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards POWL over the last 17 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in Powell Industries, Inc. (NASDAQ:POWL), which was worth $23.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $6.1 million worth of shares. Prospector Partners, Royce & Associates, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Powell Industries, Inc. (NASDAQ:POWL), around 0.68% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, designating 0.22 percent of its 13F equity portfolio to POWL.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Marshall Wace, managed by Paul Marshall and Ian Wace, initiated the most valuable position in Powell Industries, Inc. (NASDAQ:POWL). Marshall Wace had $1.8 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.7 million position during the quarter. The following funds were also among the new POWL investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Tudor Jones’s Tudor Investment Corp, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Powell Industries, Inc. (NASDAQ:POWL) but similarly valued. We will take a look at Turning Point Brands, Inc. (NYSE:TPB), Maxar Technologies Ltd. (NYSE:MAXR), OMNOVA Solutions Inc. (NYSE:OMN), and Sundial Growers Inc. (NASDAQ:SNDL). This group of stocks’ market valuations match POWL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TPB | 17 | 39440 | 3 |
| MAXR | 19 | 37391 | 7 |
| OMN | 19 | 96489 | 3 |
| #N/A | |||
| #N/A |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $48 million in POWL’s case. Maxar Technologies Ltd. (NYSE:MAXR) is the most popular stock in this table. On the other hand Sundial Growers Inc. (NASDAQ:SNDL) is the least popular one with only 8 bullish hedge fund positions. Powell Industries, Inc. (NASDAQ:POWL) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on POWL, though not to the same extent, as the stock returned 6.9% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
