The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Global Water Resources, Inc. (NASDAQ:GWRS) and find out how it is affected by hedge funds’ moves.
Global Water Resources, Inc. (NASDAQ:GWRS) was in 4 hedge funds’ portfolios at the end of the third quarter of 2019. GWRS has seen a decrease in enthusiasm from smart money lately. There were 5 hedge funds in our database with GWRS holdings at the end of the previous quarter. Our calculations also showed that GWRS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s go over the recent hedge fund action surrounding Global Water Resources, Inc. (NASDAQ:GWRS).
Hedge fund activity in Global Water Resources, Inc. (NASDAQ:GWRS)
Heading into the fourth quarter of 2019, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the second quarter of 2019. On the other hand, there were a total of 6 hedge funds with a bullish position in GWRS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Matt Diserio and Disque Deane Jr.’s Water Asset Management has the biggest position in Global Water Resources, Inc. (NASDAQ:GWRS), worth close to $4.8 million, comprising 7.4% of its total 13F portfolio. Coming in second is Renaissance Technologies, which holds a $2.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism consist of Philip Hempleman’s Ardsley Partners, Chuck Royce’s Royce & Associates and . In terms of the portfolio weights assigned to each position Water Asset Management allocated the biggest weight to Global Water Resources, Inc. (NASDAQ:GWRS), around 7.38% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, designating 0.31 percent of its 13F equity portfolio to GWRS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Cruiser Capital Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified GWRS as a viable investment and initiated a position in the stock.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Global Water Resources, Inc. (NASDAQ:GWRS) but similarly valued. These stocks are Briggs & Stratton Corporation (NYSE:BGG), Arlo Technologies, Inc. (NYSE:ARLO), Western New England Bancorp, Inc. (NASDAQ:WNEB), and Alico, Inc. (NASDAQ:ALCO). All of these stocks’ market caps match GWRS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BGG | 10 | 13142 | -1 |
| ARLO | 11 | 25088 | -3 |
| WNEB | 5 | 23226 | 2 |
| ALCO | 6 | 18892 | 1 |
| Average | 8 | 20087 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $10 million in GWRS’s case. Arlo Technologies, Inc. (NYSE:ARLO) is the most popular stock in this table. On the other hand Western New England Bancorp, Inc. (NASDAQ:WNEB) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Global Water Resources, Inc. (NASDAQ:GWRS) is even less popular than WNEB. Hedge funds clearly dropped the ball on GWRS as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on GWRS as the stock returned 14.2% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
