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Did Hedge Funds Make The Right Call On Avangrid, Inc. (AGR)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Avangrid, Inc. (NYSE:AGR) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Avangrid, Inc. (NYSE:AGR) a buy here? The best stock pickers were taking a bearish view. The number of bullish hedge fund positions decreased by 1 lately. Our calculations also showed that AGR 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). AGR was in 18 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with AGR positions at the end of the previous quarter.

Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 let’s take a glance at the latest hedge fund action surrounding Avangrid, Inc. (NYSE:AGR).

How are hedge funds trading Avangrid, Inc. (NYSE:AGR)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in AGR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AGR A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in Avangrid, Inc. (NYSE:AGR). Pzena Investment Management has a $121.9 million position in the stock, comprising 0.9% of its 13F portfolio. On Pzena Investment Management’s heels is Renaissance Technologies, which holds a $51.9 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Jos Shaver’s Electron Capital Partners, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Electron Capital Partners allocated the biggest weight to Avangrid, Inc. (NYSE:AGR), around 3.77% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.92 percent of its 13F equity portfolio to AGR.

Because Avangrid, Inc. (NYSE:AGR) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedge funds who were dropping their full holdings last quarter. At the top of the heap, Zilvinas Mecelis’s Covalis Capital dropped the largest stake of the 750 funds tracked by Insider Monkey, valued at about $41.7 million in stock, and Jonathan Barrett and Paul Segal’s Luminus Management was right behind this move, as the fund dumped about $4.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Avangrid, Inc. (NYSE:AGR) but similarly valued. These stocks are Take-Two Interactive Software, Inc. (NASDAQ:TTWO), M&T Bank Corporation (NYSE:MTB), W.W. Grainger, Inc. (NYSE:GWW), and CDW Corporation (NASDAQ:CDW). All of these stocks’ market caps match AGR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TTWO 66 1949928 7
MTB 21 687380 -11
GWW 26 345842 -3
CDW 36 947126 6
Average 37.25 982569 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.25 hedge funds with bullish positions and the average amount invested in these stocks was $983 million. That figure was $243 million in AGR’s case. Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is the most popular stock in this table. On the other hand M&T Bank Corporation (NYSE:MTB) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Avangrid, Inc. (NYSE:AGR) is even less popular than MTB. Hedge funds dodged a bullet by taking a bearish stance towards AGR. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 17.1 percentage points. Unfortunately AGR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); AGR investors were disappointed as the stock returned 11.7% 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 so far in 2020.

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