Hedge Funds Are Crazy About Aqua America Inc (WTR)

Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.

Aqua America Inc (NYSE:WTR) investors should pay attention to an increase in hedge fund interest recently. There were 10 hedge funds in our database with WTR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Arris Group, Inc. (NASDAQ:ARRS), Senior Housing Properties Trust (NYSE:SNH), and Sun Communities Inc (NYSE:SUI) to gather more data points.

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

Now, let’s check out the fresh action regarding Aqua America Inc (NYSE:WTR).

How are hedge funds trading Aqua America Inc (NYSE:WTR)?

At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 30% from one quarter earlier. By comparison, 7 hedge funds held shares or bullish call options in WTR heading into this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Impax Asset Management, led by Ian Simm, holds the largest position in Aqua America Inc (NYSE:WTR). According to regulatory filings, the fund has a $28 million position in the stock, comprising 1.3% of its 13F portfolio. The second largest stake is held by Jim Simons’ Renaissance Technologies which holds a $25.9 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions encompass Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As industrywide interest jumped, key money managers have been driving this bullishness. Two Sigma Advisors, led by John Overdeck and David Siegel, assembled the biggest position in Aqua America Inc (NYSE:WTR). According to its latest 13F filing, the fund had $8.8 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated a $3 million position during the quarter. The other funds with brand new WTR positions are Paul Tudor Jones’s Tudor Investment Corp and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Aqua America Inc (NYSE:WTR) but similarly valued. These stocks are Arris Group, Inc. (NASDAQ:ARRS), Senior Housing Properties Trust (NYSE:SNH), Sun Communities Inc (NYSE:SUI), and Keysight Technologies Inc (NYSE:KEYS). All of these stocks’ market caps match WTR’s market cap.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $429 million. That figure was $131 million in WTR’s case. Arris Group, Inc. (NASDAQ:ARRS) is the most popular stock in this table. On the other hand Senior Housing Properties Trust (NYSE:SNH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Aqua America Inc (NYSE:WTR) is even less popular than SNH. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

Disclosure: none.