Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example the Standard and Poor’s 500 Total Return Index ETFs returned 27.5% (including dividend payments) through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of nearly 37.4% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like Quanta Services Inc (NYSE:PWR).
Quanta Services Inc (NYSE:PWR) was in 30 hedge funds’ portfolios at the end of September. PWR investors should pay attention to an increase in hedge fund interest in recent months. There were 29 hedge funds in our database with PWR positions at the end of the previous quarter. Our calculations also showed that PWR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are many methods stock market investors use to appraise stocks. A pair of the best methods are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best investment managers can outclass the S&P 500 by a very impressive amount (see the details here).
William Harnisch of Peconic Partners LLC
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the recent hedge fund action regarding Quanta Services Inc (NYSE:PWR).
How are hedge funds trading Quanta Services Inc (NYSE:PWR)?
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PWR over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, William Harnisch’s Peconic Partners has the most valuable position in Quanta Services Inc (NYSE:PWR), worth close to $193.5 million, accounting for 45% of its total 13F portfolio. On Peconic Partners’s heels is Lyrical Asset Management, led by Andrew Wellington and Jeff Keswin, holding a $151.2 million position; 2.3% of its 13F portfolio is allocated to the company. Some other peers with similar optimism contain Edgar Wachenheim’s Greenhaven Associates, Cliff Asness’s AQR Capital Management and David E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Peconic Partners allocated the biggest weight to Quanta Services Inc (NYSE:PWR), around 45.01% of its portfolio. Mountain Lake Investment Management is also relatively very bullish on the stock, dishing out 9.56 percent of its 13F equity portfolio to PWR.
Now, key hedge funds were breaking ground themselves. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the largest position in Quanta Services Inc (NYSE:PWR). Luminus Management had $62.5 million invested in the company at the end of the quarter. Jos Shaver’s Electron Capital Partners also initiated a $48.9 million position during the quarter. The other funds with brand new PWR positions are Richard S. Meisenberg’s ACK Asset Management, Louis Bacon’s Moore Global Investments, and Ray Dalio’s Bridgewater Associates.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Quanta Services Inc (NYSE:PWR) but similarly valued. These stocks are Lincoln Electric Holdings, Inc. (NASDAQ:LECO), The Hanover Insurance Group, Inc. (NYSE:THG), Exelixis, Inc. (NASDAQ:EXEL), and Planet Fitness Inc (NYSE:PLNT). This group of stocks’ market caps are similar to PWR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LECO | 16 | 256053 | -6 |
| THG | 25 | 272433 | 5 |
| EXEL | 27 | 681846 | 6 |
| PLNT | 34 | 525492 | -4 |
| Average | 25.5 | 433956 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.5 hedge funds with bullish positions and the average amount invested in these stocks was $434 million. That figure was $882 million in PWR’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand Lincoln Electric Holdings, Inc. (NASDAQ:LECO) is the least popular one with only 16 bullish hedge fund positions. Quanta Services Inc (NYSE:PWR) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PWR, though not to the same extent, as the stock returned 10.2% during the first two months of the fourth quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
