Do Hedge Funds Love American States Water Co (AWR)?

How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding American States Water Co (NYSE:AWR).

American States Water Co (NYSE:AWR) was in 12 hedge funds’ portfolios at the end of September. AWR investors should pay attention to an increase in hedge fund interest in recent months. There were 8 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.

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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s take a look at the latest hedge fund action regarding American States Water Co (NYSE:AWR).

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

At Q3’s end, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AWR over the last 13 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with AWR Positions

Among these funds, Renaissance Technologies held the most valuable stake in American States Water Co (NYSE:AWR), which was worth $37.3 million at the end of the third quarter. On the second spot was GLG Partners which amassed $6.3 million worth of shares. Moreover, AQR Capital Management, Two Sigma Advisors, and Citadel Investment Group were also bullish on American States Water Co (NYSE:AWR), allocating a large percentage of their portfolios to this stock.

As aggregate interest increased, specific money managers were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the most valuable position in American States Water Co (NYSE:AWR). Millennium Management had $0.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new AWR investors: Paul Tudor Jones’s Tudor Investment Corp, Matthew Hulsizer’s PEAK6 Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as American States Water Co (NYSE:AWR) but similarly valued. These stocks are Cott Corporation (NYSE:COT), Cision Ltd. (NYSE:CISN), CONMED Corporation (NASDAQ:CNMD), and Evolent Health Inc (NYSE:EVH). 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
COT 25 581805 2
CISN 17 134540 1
CNMD 21 228787 3
EVH 13 138711 -2
Average 19 270961 1

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 $271 million. That figure was $57 million in AWR’s case. Cott Corporation (NYSE:COT) is the most popular stock in this table. On the other hand Evolent Health Inc (NYSE:EVH) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks American States Water Co (NYSE:AWR) is even less popular than EVH. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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