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Did Hedge Funds Make The Right Call On American States Water Co (AWR) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtAmerican States Water Co (NYSE:AWR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

American States Water Co (NYSE:AWR) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. AWR investors should pay attention to a decrease in enthusiasm from smart money of late. There were 21 hedge funds in our database with AWR positions at the end of the previous quarter. Our calculations also showed that AWR isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to analyze the new hedge fund action regarding American States Water Co (NYSE:AWR).

Hedge fund activity in American States Water Co (NYSE:AWR)

At Q1’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the fourth quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in AWR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Citadel Investment Group was the largest shareholder of American States Water Co (NYSE:AWR), with a stake worth $11.6 million reported as of the end of September. Trailing Citadel Investment Group was Winton Capital Management, which amassed a stake valued at $6.3 million. Renaissance Technologies, AQR Capital Management, and D E Shaw 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 PDT Partners allocated the biggest weight to American States Water Co (NYSE:AWR), around 0.21% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to AWR.

Judging by the fact that American States Water Co (NYSE:AWR) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the biggest investment of all the hedgies watched by Insider Monkey, valued at an estimated $1.4 million in stock. Farnum Brown and Adam Seitchik’s fund, Arjuna Capital, also said goodbye to its stock, about $1.1 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as American States Water Co (NYSE:AWR) but similarly valued. We will take a look at AerCap Holdings N.V. (NYSE:AER), BOK Financial Corporation (NASDAQ:BOKF), FirstCash, Inc. (NASDAQ:FCFS), and Anixter International Inc. (NYSE:AXE). This group of stocks’ market caps are closest to AWR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AER 32 616402 -4
BOKF 22 145009 7
FCFS 16 107030 0
AXE 21 541008 -22
Average 22.75 352362 -4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $51 million in AWR’s case. AerCap Holdings N.V. (NYSE:AER) is the most popular stock in this table. On the other hand FirstCash, Inc. (NASDAQ:FCFS) is the least popular one with only 16 bullish hedge fund positions. American States Water Co (NYSE:AWR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately AWR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AWR investors were disappointed as the stock returned -2.7% since Q1 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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