Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 SJW Corp. (NYSE:SJW).
Is SJW Corp. (NYSE:SJW) undervalued? Prominent investors are in a pessimistic mood. The number of long hedge fund positions went down by 11 in recent months. Our calculations also showed that SJW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the fresh hedge fund action surrounding SJW Corp. (NYSE:SJW).
Hedge fund activity in SJW Corp. (NYSE:SJW)
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SJW over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of SJW Corp. (NYSE:SJW), with a stake worth $76 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $19.9 million. Point72 Asset Management, Shelter Harbor Advisors, and GAMCO Investors 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 Water Asset Management allocated the biggest weight to SJW Corp. (NYSE:SJW), around 8.28% of its 13F portfolio. Shelter Harbor Advisors is also relatively very bullish on the stock, dishing out 5.92 percent of its 13F equity portfolio to SJW.
Due to the fact that SJW Corp. (NYSE:SJW) has witnessed bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers that slashed their full holdings in the third quarter. Interestingly, Israel Englander’s Millennium Management dumped the biggest position of all the hedgies watched by Insider Monkey, comprising close to $13.5 million in stock, and Brian Olson, Baehyun Sung, and Jamie Waters’s Blackstart Capital was right behind this move, as the fund cut about $6.2 million worth. These transactions are important to note, as total hedge fund interest was cut by 11 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as SJW Corp. (NYSE:SJW) but similarly valued. We will take a look at TowneBank (NASDAQ:TOWN), Banner Corporation (NASDAQ:BANR), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), and Papa John’s International, Inc. (NASDAQ:PZZA). This group of stocks’ market valuations resemble SJW’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $146 million in SJW’s case. Papa John’s International, Inc. (NASDAQ:PZZA) is the most popular stock in this table. On the other hand TowneBank (NASDAQ:TOWN) is the least popular one with only 6 bullish hedge fund positions. SJW Corp. (NYSE:SJW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on SJW, though not to the same extent, as the stock returned -13.8% during the same time period and outperformed the market.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.