It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. 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. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year (through September 30th). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. 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 Connecticut Water Service, Inc. (NASDAQ:CTWS).
Connecticut Water Service, Inc. (NASDAQ:CTWS) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. CTWS was in 5 hedge funds’ portfolios at the end of the second quarter of 2019. There were 4 hedge funds in our database with CTWS holdings at the end of the previous quarter. Our calculations also showed that CTWS isn’t among the 30 most popular stocks among hedge funds (see the video below).
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 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action regarding Connecticut Water Service, Inc. (NASDAQ:CTWS).
How have hedgies been trading Connecticut Water Service, Inc. (NASDAQ:CTWS)?
At Q2’s end, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the first quarter of 2019. By comparison, 8 hedge funds held shares or bullish call options in CTWS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Connecticut Water Service, Inc. (NASDAQ:CTWS), with a stake worth $18.5 million reported as of the end of March. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $3.6 million. GAMCO Investors, Two Sigma Advisors, and BlueCrest Capital Mgmt. were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most outsized position in Connecticut Water Service, Inc. (NASDAQ:CTWS). Two Sigma Advisors had $0.8 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Connecticut Water Service, Inc. (NASDAQ:CTWS) but similarly valued. These stocks are ScanSource, Inc. (NASDAQ:SCSC), GoPro Inc (NASDAQ:GPRO), Vericel Corp (NASDAQ:VCEL), and QAD Inc. (NASDAQ:QADA). This group of stocks’ market caps match CTWS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCSC | 8 | 51782 | -2 |
| GPRO | 19 | 190326 | -4 |
| VCEL | 17 | 176656 | -8 |
| QADA | 11 | 113256 | -5 |
| Average | 13.75 | 133005 | -4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $133 million. That figure was $25 million in CTWS’s case. GoPro Inc (NASDAQ:GPRO) is the most popular stock in this table. On the other hand ScanSource, Inc. (NASDAQ:SCSC) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Connecticut Water Service, Inc. (NASDAQ:CTWS) is even less popular than SCSC. Hedge funds dodged a bullet by taking a bearish stance towards CTWS. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CTWS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); CTWS investors were disappointed as the stock returned 1% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
