Did Hedge Funds Make The Right Call On Essential Utilities Inc (WTRG)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional 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. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Essential Utilities Inc (NYSE:WTRG) and determine whether hedge funds skillfully traded this stock.

Is Essential Utilities Inc (NYSE:WTRG) a buy, sell, or hold? The smart money was getting more bullish. The number of long hedge fund positions inched up by 2 lately. Our calculations also showed that WTRG 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a gander at the recent hedge fund action surrounding Essential Utilities Inc (NYSE:WTRG).

How have hedgies been trading Essential Utilities Inc (NYSE:WTRG)?

Heading into the second quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in WTRG 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 WTRG A Good Stock To Buy?

Among these funds, Zimmer Partners held the most valuable stake in Essential Utilities Inc (NYSE:WTRG), which was worth $348.6 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $100 million worth of shares. Carlson Capital, Royce & Associates, and AQR Capital 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 Zimmer Partners allocated the biggest weight to Essential Utilities Inc (NYSE:WTRG), around 7.72% of its 13F portfolio. Blackstart Capital is also relatively very bullish on the stock, dishing out 5.24 percent of its 13F equity portfolio to WTRG.

Consequently, key money managers have jumped into Essential Utilities Inc (NYSE:WTRG) headfirst. Ecofin Ltd, managed by Bernard Lambilliotte, created the most outsized position in Essential Utilities Inc (NYSE:WTRG). Ecofin Ltd had $5.1 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $3.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Israel Englander’s Millennium Management, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks similar to Essential Utilities Inc (NYSE:WTRG). These stocks are Zebra Technologies Corporation (NASDAQ:ZBRA), FactSet Research Systems Inc. (NYSE:FDS), Synchrony Financial (NYSE:SYF), and Moderna, Inc. (NASDAQ:MRNA). This group of stocks’ market caps match WTRG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZBRA 28 576010 -6
FDS 21 210129 -3
SYF 37 1011642 -7
MRNA 25 424500 13
Average 27.75 555570 -0.75

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 $556 million. That figure was $519 million in WTRG’s case. Synchrony Financial (NYSE:SYF) is the most popular stock in this table. On the other hand FactSet Research Systems Inc. (NYSE:FDS) is the least popular one with only 21 bullish hedge fund positions. Essential Utilities Inc (NYSE:WTRG) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately WTRG wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WTRG investors were disappointed as the stock returned 4.4% during the second quarter 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.