Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Spark Energy, Inc. (NASDAQ:SPKE) has seen a decrease in enthusiasm from smart money lately. Our calculations also showed that SPKE 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.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely 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. We’re going to take a glance at the latest hedge fund action encompassing Spark Energy, Inc. (NASDAQ:SPKE).
How have hedgies been trading Spark Energy, Inc. (NASDAQ:SPKE)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SPKE over the last 17 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Spark Energy, Inc. (NASDAQ:SPKE) was held by Renaissance Technologies, which reported holding $5.7 million worth of stock at the end of September. It was followed by Millennium Management with a $4.1 million position. Other investors bullish on the company included Arrowstreet Capital, Royce & Associates, and D E Shaw. In terms of the portfolio weights assigned to each position Ardsley Partners allocated the biggest weight to Spark Energy, Inc. (NASDAQ:SPKE), around 0.02% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to SPKE.
Since Spark Energy, Inc. (NASDAQ:SPKE) has faced falling interest from hedge fund managers, we can see that there was a specific group of money managers that decided to sell off their full holdings heading into Q4. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace cut the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $0.5 million in stock. Cliff Asness’s fund, AQR Capital Management, also said goodbye to its stock, about $0.1 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Spark Energy, Inc. (NASDAQ:SPKE) but similarly valued. These stocks are Kimball Electronics Inc (NASDAQ:KE), Golden Entertainment Inc (NASDAQ:GDEN), Tuniu Corporation (NASDAQ:TOUR), and Intelligent Systems Corporation (NYSE:INS). This group of stocks’ market caps are closest to SPKE’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KE | 10 | 20155 | 1 |
| GDEN | 12 | 75579 | 1 |
| TOUR | 3 | 21391 | -1 |
| INS | 7 | 99921 | 0 |
| Average | 8 | 54262 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $14 million in SPKE’s case. Golden Entertainment Inc (NASDAQ:GDEN) is the most popular stock in this table. On the other hand Tuniu Corporation (NASDAQ:TOUR) is the least popular one with only 3 bullish hedge fund positions. Spark Energy, Inc. (NASDAQ:SPKE) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on SPKE, though not to the same extent, as the stock returned 6.2% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.
