Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards American Water Works Company, Inc. (NYSE:AWK).
American Water Works Company, Inc. (NYSE:AWK) shareholders have witnessed a decrease in hedge fund interest of late. Our calculations also showed that AWK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s check out the recent hedge fund action encompassing American Water Works Company, Inc. (NYSE:AWK).
Hedge fund activity in American Water Works Company, Inc. (NYSE:AWK)
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -28% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in AWK over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in American Water Works Company, Inc. (NYSE:AWK), which was worth $296.6 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $130.6 million worth of shares. Two Sigma Advisors, Osterweis Capital Management, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Blackstart Capital allocated the biggest weight to American Water Works Company, Inc. (NYSE:AWK), around 5.57% of its 13F portfolio. Water Asset Management is also relatively very bullish on the stock, dishing out 4.76 percent of its 13F equity portfolio to AWK.
Since American Water Works Company, Inc. (NYSE:AWK) has witnessed falling interest from the smart money, it’s safe to say that there was a specific group of money managers that decided to sell off their entire stakes last quarter. Interestingly, Ken Griffin’s Citadel Investment Group dumped the largest investment of all the hedgies watched by Insider Monkey, worth close to $53.1 million in stock. Jonathan Barrett and Paul Segal’s fund, Luminus Management, also sold off its stock, about $32.8 million worth. These transactions are important to note, as total hedge fund interest dropped by 11 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to American Water Works Company, Inc. (NYSE:AWK). These stocks are Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Corteva, Inc. (NYSE:CTVA), ANSYS, Inc. (NASDAQ:ANSS), and Align Technology, Inc. (NASDAQ:ALGN). This group of stocks’ market valuations match AWK’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1148 million. That figure was $626 million in AWK’s case. Align Technology, Inc. (NASDAQ:ALGN) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 11 bullish hedge fund positions. American Water Works Company, Inc. (NYSE:AWK) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on AWK, though not to the same extent, as the stock returned -2.6% during the first four months of 2020 (through May 1st) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.