We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards American Water Works Company, Inc. (NYSE:AWK).
Is AWK stock a buy? Money managers were becoming more confident. The number of bullish hedge fund positions increased by 5 lately. American Water Works Company, Inc. (NYSE:AWK) was in 36 hedge funds’ portfolios at the end of December. The all time high for this statistic is 40. Our calculations also showed that AWK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the 21st century investor’s toolkit there are a lot of formulas investors put to use to value stocks. Two of the most useful formulas are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can trounce the broader indices by a very impressive amount (see the details here).
Donald Sussman of Paloma Partners
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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. Now we’re going to take a peek at the recent hedge fund action encompassing American Water Works Company, Inc. (NYSE:AWK).
Do Hedge Funds Think AWK Is A Good Stock To Buy Now?
At the end of December, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AWK over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Impax Asset Management held the most valuable stake in American Water Works Company, Inc. (NYSE:AWK), which was worth $595.6 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $77.8 million worth of shares. D E Shaw, Millennium Management, and Adage 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 Coann Capital allocated the biggest weight to American Water Works Company, Inc. (NYSE:AWK), around 7.02% of its 13F portfolio. Trellus Management Company is also relatively very bullish on the stock, setting aside 6.53 percent of its 13F equity portfolio to AWK.
As aggregate interest increased, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in American Water Works Company, Inc. (NYSE:AWK). Marshall Wace LLP had $16.5 million invested in the company at the end of the quarter. Jim Simons (founder)’s Renaissance Technologies also initiated a $15.2 million position during the quarter. The following funds were also among the new AWK investors: Charles Montanaro’s Montanaro Asset Management, Matthew Davis’s Coann Capital, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as American Water Works Company, Inc. (NYSE:AWK) but similarly valued. These stocks are Discover Financial Services (NYSE:DFS), Southwest Airlines Co. (NYSE:LUV), Corning Incorporated (NYSE:GLW), Splunk Inc (NASDAQ:SPLK), NatWest Group plc (NYSE:NWG), Nutrien Ltd. (NYSE:NTR), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). All of these stocks’ market caps match AWK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DFS | 43 | 729763 | -4 |
| LUV | 55 | 757534 | 4 |
| GLW | 39 | 334973 | 3 |
| SPLK | 47 | 1036156 | 3 |
| NWG | 3 | 759 | 1 |
| NTR | 25 | 754698 | -1 |
| WLTW | 58 | 3245691 | 7 |
| Average | 38.6 | 979939 | 1.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $980 million. That figure was $958 million in AWK’s case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand NatWest Group plc (NYSE:NWG) is the least popular one with only 3 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. Our overall hedge fund sentiment score for AWK is 67. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 7.9% in 2021 through April 1st and surpassed the market again by 0.4 percentage points. Unfortunately AWK wasn’t nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); AWK investors were disappointed as the stock returned -1.5% since the end of December (through 4/1) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Follow American Water Works Company Inc. (NYSE:AWK)
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Disclosure: None. This article was originally published at Insider Monkey.
