Southwest Gas Corporation (NYSE:SWX) investors should pay attention to an increase in hedge fund sentiment in recent months.
In the eyes of most market participants, hedge funds are perceived as unimportant, outdated financial tools of years past. While there are greater than 8000 funds with their doors open today, we hone in on the upper echelon of this club, close to 450 funds. It is widely believed that this group oversees the lion's share of the hedge fund industry's total asset base, and by monitoring their top stock picks, we have unsheathed a number of investment strategies that have historically outperformed the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we've started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).
Just as integral, positive insider trading activity is a second way to parse down the marketplace. Just as you'd expect, there are many motivations for an insider to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Several academic studies have demonstrated the useful potential of this method if you know where to look (learn more here).
Consequently, let's take a look at the latest action encompassing Southwest Gas Corporation (NYSE:SWX).
In preparation for this quarter, a total of 16 of the hedge funds we track were long in this stock, a change of 23% from the previous quarter. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their stakes meaningfully.
Of the funds we track, Mario Gabelli's GAMCO Investors had the biggest position in Southwest Gas Corporation (NYSE:SWX), worth close to $70 million, accounting for 0.4% of its total 13F portfolio. On GAMCO Investors's heels is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which held a $63.6 million position; 0.2% of its 13F portfolio is allocated to the stock. Some other peers that are bullish include Jim Simons's Renaissance Technologies, Thomas M. Fitzgerald's Longbow Capital Partners and Ken Gray and Steve Walsh's Bryn Mawr Capital.
Now, specific money managers have been driving this bullishness. Longbow Capital Partners, managed by Thomas M. Fitzgerald, created the most outsized position in Southwest Gas Corporation (NYSE:SWX). Longbow Capital Partners had 2.5 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are Alec Litowitz and Ross Laser's Magnetar Capital and Paul Tudor Jones's Tudor Investment Corp.
Bullish insider trading is at its handiest when the primary stock in question has experienced transactions within the past 180 days. Over the last six-month time period, Southwest Gas Corporation (NYSE:SWX) has seen 1 unique insiders purchasing, and 11 insider sales (see the details of insider trades here).
Let's check out hedge fund and insider activity in other stocks similar to Southwest Gas Corporation (NYSE:SWX). These stocks are New Jersey Resources Corp (NYSE:NJR), Suburban Propane Partners LP (NYSE:SPH), Piedmont Natural Gas Company, Inc. (NYSE:PNY), WGL Holdings Inc (NYSE:WGL), and Atlas Energy LP (NYSE:ATLS). This group of stocks are in the gas utilities industry and their market caps are similar to SWX's market cap.