We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether American Water Works Company, Inc. (NYSE:AWK) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
American Water Works Company, Inc. (NYSE:AWK) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Our calculations also showed that AWK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
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 latest hedge fund action regarding American Water Works Company, Inc. (NYSE:AWK).
What have hedge funds been doing with American Water Works Company, Inc. (NYSE:AWK)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -28% from the third quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in AWK a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in American Water Works Company, Inc. (NYSE:AWK) was held by Impax Asset Management, which reported holding $296.6 million worth of stock at the end of September. It was followed by AQR Capital Management with a $130.6 million position. Other investors bullish on the company included Two Sigma Advisors, Osterweis Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to American Water Works Company, Inc. (NYSE:AWK), around 5.57% of its 13F portfolio. Water Asset Management is also relatively very bullish on the stock, designating 4.76 percent of its 13F equity portfolio to AWK.
Judging by the fact that American Water Works Company, Inc. (NYSE:AWK) has experienced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies that slashed their positions entirely in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dropped the biggest position of the “upper crust” of funds followed by Insider Monkey, valued at about $53.1 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also dropped its stock, about $32.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as American Water Works Company, Inc. (NYSE:AWK) but similarly valued. We will take a look at Fresenius Medical Care AG & Co. (NYSE:FMS), Corteva, Inc. (NYSE:CTVA), ANSYS, Inc. (NASDAQ:ANSS), and Align Technology, Inc. (NASDAQ:ALGN). All of these stocks’ market caps are closest to AWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FMS | 11 | 13249 | 6 |
| CTVA | 27 | 676056 | -10 |
| ANSS | 33 | 1348315 | 0 |
| ALGN | 40 | 2552526 | 1 |
| Average | 27.75 | 1147537 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1148 million. That figure was $626 million in AWK’s case. Align Technology, Inc. (NASDAQ:ALGN) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. (NYSE:FMS) is the least popular one with only 11 bullish hedge fund positions. American Water Works Company, Inc. (NYSE:AWK) 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 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. Hedge funds were also right about betting on AWK as the stock returned 5.9% during the first quarter (through March 11th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
