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. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Southwest Gas Corporation (NYSE:SWX).
Is Southwest Gas Corporation (NYSE:SWX) a superb investment now? Investors who are in the know are taking a bullish view. The number of bullish hedge fund bets increased by 1 lately. Our calculations also showed that SWX 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). SWX was in 23 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with SWX holdings at the end of the previous quarter.
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Phill Gross of Adage 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 we’re going to take a peek at the key hedge fund action encompassing Southwest Gas Corporation (NYSE:SWX).
How have hedgies been trading Southwest Gas Corporation (NYSE:SWX)?
At Q4’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in SWX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Adage Capital Management held the most valuable stake in Southwest Gas Corporation (NYSE:SWX), which was worth $68.9 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $55.2 million worth of shares. AQR Capital Management, Millennium Management, 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 Shelter Harbor Advisors allocated the biggest weight to Southwest Gas Corporation (NYSE:SWX), around 2.97% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.44 percent of its 13F equity portfolio to SWX.
Consequently, key hedge funds have been driving this bullishness. Shelter Harbor Advisors, managed by Peter J. Hark, initiated the most valuable position in Southwest Gas Corporation (NYSE:SWX). Shelter Harbor Advisors had $5.7 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $1.1 million position during the quarter. The other funds with brand new SWX positions are Dmitry Balyasny’s Balyasny Asset Management, Donald Sussman’s Paloma Partners, and Thomas Bailard’s Bailard Inc.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Southwest Gas Corporation (NYSE:SWX) but similarly valued. We will take a look at Stifel Financial Corp. (NYSE:SF), F.N.B. Corp (NYSE:FNB), B2Gold Corp (NYSE:BTG), and Thor Industries, Inc. (NYSE:THO). This group of stocks’ market caps match SWX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SF | 15 | 148704 | 1 |
| FNB | 23 | 124299 | 4 |
| BTG | 17 | 242934 | 3 |
| THO | 30 | 247356 | 0 |
| Average | 21.25 | 190823 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $191 million. That figure was $201 million in SWX’s case. Thor Industries, Inc. (NYSE:THO) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 15 bullish hedge fund positions. Southwest Gas Corporation (NYSE:SWX) 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 SWX, though not to the same extent, as the stock returned -19% during the first two and a half months of 2020 (through March 25th) and outperformed the market as well.
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.
