How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Avangrid, Inc. (NYSE:AGR) and determine whether hedge funds had an edge regarding this stock.
Avangrid, Inc. (NYSE:AGR) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the second quarter of 2020. Our calculations also showed that AGR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare AGR to other stocks including Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), and FMC Corporation (NYSE:FMC) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are many indicators investors employ to evaluate publicly traded companies. Two of the less known indicators are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the top investment managers can outclass the S&P 500 by a significant amount (see the details here).
Mario Gabelli of GAMCO Investors
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a gander at the fresh hedge fund action surrounding Avangrid, Inc. (NYSE:AGR).
Hedge fund activity in Avangrid, Inc. (NYSE:AGR)
At second quarter’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. By comparison, 12 hedge funds held shares or bullish call options in AGR a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Pzena Investment Management held the most valuable stake in Avangrid, Inc. (NYSE:AGR), which was worth $70.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $14.7 million worth of shares. Renaissance Technologies, GAMCO Investors, and AQR Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Pzena Investment Management allocated the biggest weight to Avangrid, Inc. (NYSE:AGR), around 0.46% of its 13F portfolio. Quantamental Technologies is also relatively very bullish on the stock, designating 0.2 percent of its 13F equity portfolio to AGR.
Seeing as Avangrid, Inc. (NYSE:AGR) has faced bearish sentiment from the smart money, logic holds that there is a sect of money managers who sold off their entire stakes in the second quarter. At the top of the heap, Jos Shaver’s Electron Capital Partners dropped the largest position of the “upper crust” of funds watched by Insider Monkey, comprising close to $14.4 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dropped its stock, about $1.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks similar to Avangrid, Inc. (NYSE:AGR). We will take a look at Burlington Stores Inc (NYSE:BURL), Synchrony Financial (NYSE:SYF), FMC Corporation (NYSE:FMC), Galapagos NV (NASDAQ:GLPG), Martin Marietta Materials, Inc. (NYSE:MLM), Carnival Corporation & Plc (NYSE:CCL), and Zillow Group Inc (NASDAQ:Z). This group of stocks’ market valuations are similar to AGR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BURL | 38 | 1475273 | -2 |
| SYF | 46 | 1563925 | 9 |
| FMC | 42 | 548601 | 3 |
| GLPG | 13 | 151392 | -2 |
| MLM | 51 | 1593527 | 7 |
| CCL | 31 | 362150 | 0 |
| Z | 59 | 2299780 | 22 |
| Average | 40 | 1142093 | 5.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $1142 million. That figure was $133 million in AGR’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Galapagos NV (NASDAQ:GLPG) is the least popular one with only 13 bullish hedge fund positions. Avangrid, Inc. (NYSE:AGR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AGR is 37.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. A small number of hedge funds were also right about betting on AGR as the stock returned 21.3% in the third quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
