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Did Hedge Funds Make The Right Call On Northwest Natural Holding Company (NWN) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Northwest Natural Holding Company (NYSE:NWN) based on that data and determine whether they were really smart about the stock.

Northwest Natural Holding Company (NYSE:NWN) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of March. At the end of this article we will also compare NWN to other stocks including ASGN Incorporated (NYSE:ASGN), Evercore Inc. (NYSE:EVR), and Triton International Limited (NYSE:TRTN) to get a better sense of its popularity.

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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. Keeping this in mind we’re going to view the new hedge fund action regarding Northwest Natural Holding Company (NYSE:NWN).

What does smart money think about Northwest Natural Holding Company (NYSE:NWN)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in NWN a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Northwest Natural Holding Company (NYSE:NWN), which was worth $19.5 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $11 million worth of shares. Winton Capital Management, Millennium Management, and Engineers Gate Manager 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 Winton Capital Management allocated the biggest weight to Northwest Natural Holding Company (NYSE:NWN), around 0.21% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.2 percent of its 13F equity portfolio to NWN.

Since Northwest Natural Holding Company (NYSE:NWN) has witnessed falling interest from the aggregate hedge fund industry, we can see that there is a sect of funds that slashed their positions entirely by the end of the first quarter. At the top of the heap, Donald Sussman’s Paloma Partners sold off the biggest investment of the 750 funds watched by Insider Monkey, worth about $8.4 million in stock. Ryan Tolkin (CIO)’s fund, Schonfeld Strategic Advisors, also dropped its stock, about $0.6 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Northwest Natural Holding Company (NYSE:NWN). These stocks are ASGN Incorporated (NYSE:ASGN), Evercore Inc. (NYSE:EVR), Triton International Limited (NYSE:TRTN), and Karuna Therapeutics, Inc. (NASDAQ:KRTX). This group of stocks’ market values are closest to NWN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ASGN 19 43700 1
EVR 29 198051 -3
TRTN 12 26482 -4
KRTX 16 148161 1
Average 19 104099 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $60 million in NWN’s case. Evercore Inc. (NYSE:EVR) is the most popular stock in this table. On the other hand Triton International Limited (NYSE:TRTN) is the least popular one with only 12 bullish hedge fund positions. Northwest Natural Holding Company (NYSE:NWN) 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 NWN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NWN investors were disappointed as the stock returned -13.2% 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.