We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards American States Water Co (NYSE:AWR), and what that likely means for the prospects of the company and its stock.
American States Water Co (NYSE:AWR) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 8 hedge funds’ portfolios at the end of the third quarter of 2016. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Innospec Inc. (NASDAQ:IOSP), Dynegy Inc. (NYSE:DYN), and Grupo Financiero Galicia S.A. (ADR) (NASDAQ:GGAL) to gather more data points.
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What have hedge funds been doing with American States Water Co (NYSE:AWR)?
At Q3’s end, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 5 hedge funds held shares or bullish call options in AWR heading into this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, holds the most valuable position in American States Water Co (NYSE:AWR). Renaissance Technologies has a $33.4 million position in the stock. Sitting at the No. 2 spot is Cliff Asness of AQR Capital Management, with a $3.4 million position. Some other members of the smart money that are bullish include Israel Englander’s Millennium Management, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Two Sigma Advisors).
Let’s go over hedge fund activity in other stocks similar to American States Water Co (NYSE:AWR). We will take a look at Innospec Inc. (NASDAQ:IOSP), Dynegy Inc. (NYSE:DYN), Grupo Financiero Galicia S.A. (ADR) (NASDAQ:GGAL), and Ladder Capital Corp (NYSE:LADR). This group of stocks’ market valuations match AWR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IOSP | 18 | 141063 | 0 |
| DYN | 36 | 760238 | -7 |
| GGAL | 16 | 151147 | 2 |
| LADR | 8 | 60676 | 1 |
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $42 million in AWR’s case. Dynegy Inc. (NYSE:DYN) is the most popular stock in this table. On the other hand Ladder Capital Corp (NYSE:LADR) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks American States Water Co (NYSE:AWR) is even less popular than LADR. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None
