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Did Hedge Funds Drop The Ball On Algonquin Power & Utilities Corp. (AQN) ?

Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the nearly unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Is Algonquin Power & Utilities Corp. (NYSE:AQN) a splendid investment today? Money managers are in a bearish mood. The number of long hedge fund bets decreased by 3 recently. Our calculations also showed that AQN isn’t among the 30 most popular stocks among hedge funds (view the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

AQN_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s view the key hedge fund action encompassing Algonquin Power & Utilities Corp. (NYSE:AQN).

What have hedge funds been doing with Algonquin Power & Utilities Corp. (NYSE:AQN)?

Heading into the third quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in AQN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Bernard Lambilliotte - Ecofin

The largest stake in Algonquin Power & Utilities Corp. (NYSE:AQN) was held by Renaissance Technologies, which reported holding $23.1 million worth of stock at the end of March. It was followed by Ecofin Ltd with a $18 million position. Other investors bullish on the company included Two Sigma Advisors, Millennium Management, and D E Shaw.

Judging by the fact that Algonquin Power & Utilities Corp. (NYSE:AQN) has experienced a decline in interest from the smart money, it’s safe to say that there were a few hedgies who sold off their full holdings last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the 750 funds followed by Insider Monkey, totaling about $0.9 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $0.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Algonquin Power & Utilities Corp. (NYSE:AQN) but similarly valued. We will take a look at Tallgrass Energy, LP (NYSE:TGE), AGCO Corporation (NYSE:AGCO), Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC), and Cimarex Energy Co (NYSE:XEC). This group of stocks’ market valuations resemble AQN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGE 13 47232 2
AGCO 25 227411 -1
PAC 4 105017 -3
XEC 27 1108459 -3
Average 17.25 372030 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $372 million. That figure was $64 million in AQN’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Grupo Aeroportuario del Pacifico, S.A.B. de C.V. (NYSE:PAC) is the least popular one with only 4 bullish hedge fund positions. Algonquin Power & Utilities Corp. (NYSE:AQN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on AQN as the stock returned 14.3% during the same time frame and outperformed the market by an even larger margin.

Disclosure: None. This article was originally published at Insider Monkey.

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