At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Tiger Global because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
Evoqua Water Technologies Corp. (NYSE:AQUA) shareholders have witnessed an increase in hedge fund interest recently. AQUA was in 13 hedge funds’ portfolios at the end of March. There were 12 hedge funds in our database with AQUA holdings at the end of the previous quarter. Our calculations also showed that AQUA isn’t among the 30 most popular stocks among hedge funds.
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’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
We’re going to analyze the recent hedge fund action regarding Evoqua Water Technologies Corp. (NYSE:AQUA).
Hedge fund activity in Evoqua Water Technologies Corp. (NYSE:AQUA)
At Q1’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in AQUA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, P2 Capital Partners was the largest shareholder of Evoqua Water Technologies Corp. (NYSE:AQUA), with a stake worth $67.6 million reported as of the end of March. Trailing P2 Capital Partners was Ardsley Partners, which amassed a stake valued at $11.8 million. Tudor Investment Corp, Point72 Asset Management, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key money managers were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, established the most valuable position in Evoqua Water Technologies Corp. (NYSE:AQUA). Point72 Asset Management had $5.4 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, David Costen Haley’s HBK Investments, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s check out hedge fund activity in other stocks similar to Evoqua Water Technologies Corp. (NYSE:AQUA). These stocks are Sleep Number Corporation (NASDAQ:SNBR), Noble Midstream Partners LP (NYSE:NBLX), MOGU Inc. (NYSE:MOGU), and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA). This group of stocks’ market caps match AQUA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNBR | 20 | 192016 | 2 |
| NBLX | 4 | 7623 | -2 |
| MOGU | 1 | 440 | -1 |
| MNTA | 18 | 259500 | -2 |
| Average | 10.75 | 114895 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $115 million. That figure was $106 million in AQUA’s case. Sleep Number Corporation (NASDAQ:SNBR) is the most popular stock in this table. On the other hand MOGU Inc. (NYSE:MOGU) is the least popular one with only 1 bullish hedge fund positions. Evoqua Water Technologies Corp. (NYSE:AQUA) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Hedge funds were also right about betting on AQUA, though not to the same extent, as the stock returned 5.1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
