Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 37.4% compared to 27.5%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
IDACORP Inc (NYSE:IDA) investors should be aware of a decrease in activity from the world’s largest hedge funds lately. IDA was in 18 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with IDA positions at the end of the previous quarter. Our calculations also showed that IDA 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.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the recent hedge fund action encompassing IDACORP Inc (NYSE:IDA).
How are hedge funds trading IDACORP Inc (NYSE:IDA)?
At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in IDA over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jim Simons’ Renaissance Technologies has the most valuable position in IDACORP Inc (NYSE:IDA), worth close to $117.8 million, accounting for 0.1% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $48.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other peers that are bullish encompass David Harding’s Winton Capital Management, Noam Gottesman’s GLG Partners and Ken Fisher’s Fisher Asset Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to IDACORP Inc (NYSE:IDA), around 0.49% of its 13F portfolio. Cerebellum Capital is also relatively very bullish on the stock, earmarking 0.3 percent of its 13F equity portfolio to IDA.
Judging by the fact that IDACORP Inc (NYSE:IDA) has witnessed falling interest from the smart money, it’s safe to say that there lies a certain “tier” of funds that slashed their positions entirely last quarter. At the top of the heap, Paul Tudor Jones’s Tudor Investment Corp dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $2.7 million in stock, and Peter J. Hark’s Shelter Harbor Advisors was right behind this move, as the fund said goodbye to about $2.5 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to IDACORP Inc (NYSE:IDA). These stocks are Tallgrass Energy, LP (NYSE:TGE), Allison Transmission Holdings Inc (NYSE:ALSN), Grupo Televisa SAB (NYSE:TV), and The Scotts Miracle-Gro Company (NYSE:SMG). This group of stocks’ market caps are closest to IDA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TGE | 20 | 205953 | 7 |
| ALSN | 28 | 883019 | 3 |
| TV | 14 | 826232 | -4 |
| SMG | 30 | 413760 | 6 |
| Average | 23 | 582241 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $582 million. That figure was $366 million in IDA’s case. The Scotts Miracle-Gro Company (NYSE:SMG) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 14 bullish hedge fund positions. IDACORP Inc (NYSE:IDA) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. Unfortunately IDA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); IDA investors were disappointed as the stock returned -6.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
