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Is El Paso Electric Company (EE) Worthy of Your Portfolio?

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We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards El Paso Electric Company (NYSE:EE), and what that likely means for the prospects of the company and its stock.

El Paso Electric Company (NYSE:EE) investors should pay attention to a decrease in support from the world’s most successful money managers of late. There were nine hedge funds in our database with EE positions at the end of the third quarter. At the end of this article we will also compare EE to other stocks including Cosan Limited (USA) (NYSE:CZZ), Alexander & Baldwin Inc (NYSE:ALEX), and FTI Consulting, Inc. (NYSE:FCN) to get a better sense of its popularity.

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We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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Now, let’s take a look at the recent action encompassing El Paso Electric Company (NYSE:EE).

What have hedge funds been doing with El Paso Electric Company (NYSE:EE)?

At the end of the third quarter, a total of nine of the hedge funds tracked by Insider Monkey were bullish on this stock, down by three funds from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in EE over the last five quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart

According to Insider Monkey’s hedge fund database, GAMCO Investors, led by Mario Gabelli, holds the largest position in El Paso Electric Company (NYSE:EE). GAMCO Investors has a $79.5 million position in the stock, comprising 0.5% of its 13F portfolio. On GAMCO Investors’s heels is Millennium Management, led by Israel Englander, which holds a $33.5 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism contain Renaissance Technologies, one of the largest hedge funds in the world, D. E. Shaw’s D E Shaw and Cliff Asness’s AQR Capital Management. We should note that none of these hedge funds are 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.

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