While the market driven by short-term sentiment influenced by uncertainty regarding the future of the interest rate environment in the US, declining oil prices and the trade war with China, many smart money investors are keeping their optimism regarding the current bull run, while still hedging many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding American Water Works Company, Inc. (NYSE:AWK).
American Water Works Company, Inc. (NYSE:AWK) was in 20 hedge funds’ portfolios at the end of the third quarter of 2018. AWK shareholders have witnessed an increase in support from the world’s most elite money managers of late. There were 19 hedge funds in our database with AWK positions at the end of the previous quarter. Our calculations also showed that AWK isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s also examine 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 KLA-Tencor Corporation (NASDAQ:KLAC), Loews Corporation (NYSE:L), Tiffany & Co. (NYSE:TIF), and Banco de Chile (NYSE:BCH). All of these stocks’ market caps resemble AWK’s market cap.
Among these funds, Impax Asset Management held the most valuable stake in American Water Works Company, Inc. (NYSE:AWK), which was worth $235.7 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $68.6 million worth of shares. Moreover, Renaissance Technologies, AQR Capital Management, and Carlson Capital were also bullish on American Water Works Company, Inc. (NYSE:AWK), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, key hedge funds have been driving this bullishness. Stevens Capital Management, managed by Matthew Tewksbury, assembled the biggest position in American Water Works Company, Inc. (NYSE:AWK). Stevens Capital Management had $0.9 million invested in the company at the end of the quarter. George Zweig, Shane Haas and Ravi Chander’s Signition LP also initiated a $0.2 million position during the quarter. The following funds were also among the new AWK investors: Robert B. Gillam’s McKinley Capital Management, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital, and Frederick DiSanto’s Ancora Advisors.
Let’s also examine 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 KLA-Tencor Corporation (NASDAQ:KLAC), Loews Corporation (NYSE:L), Tiffany & Co. (NYSE:TIF), and Banco de Chile (NYSE:BCH). All of these stocks’ market caps resemble AWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KLAC | 27 | 909190 | 1 |
| L | 24 | 423464 | 5 |
| TIF | 43 | 1695941 | 0 |
| BCH | 2 | 73234 | -2 |
| Average | 24 | 775457 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $775 million. That figure was $503 million in AWK’s case. Tiffany & Co. (NYSE:TIF) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 2 bullish hedge fund positions. American Water Works Company, Inc. (NYSE:AWK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard TIF might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
