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Hedge Funds Are Nibbling On Otter Tail Corporation (OTTR)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtOtter Tail Corporation (NASDAQ:OTTR) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Otter Tail Corporation (NASDAQ:OTTR) a buy right now? The smart money was betting on the stock. The number of bullish hedge fund positions improved by 1 recently. Our calculations also showed that OTTR 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.

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.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to go over the key hedge fund action surrounding Otter Tail Corporation (NASDAQ:OTTR).

Hedge fund activity in Otter Tail Corporation (NASDAQ:OTTR)

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards OTTR over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Renaissance Technologies held the most valuable stake in Otter Tail Corporation (NASDAQ:OTTR), which was worth $37.9 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $13.4 million worth of shares. Millennium Management, Citadel Investment Group, 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 Zebra Capital Management allocated the biggest weight to Otter Tail Corporation (NASDAQ:OTTR), around 1.19% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.38 percent of its 13F equity portfolio to OTTR.

Consequently, some big names were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most outsized position in Otter Tail Corporation (NASDAQ:OTTR). Marshall Wace LLP had $0.9 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $0.2 million investment in the stock during the quarter. The only other fund with a brand new OTTR position is Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Otter Tail Corporation (NASDAQ:OTTR) but similarly valued. These stocks are Commscope Holding Company Inc (NASDAQ:COMM), Healthcare Services Group, Inc. (NASDAQ:HCSG), Ballard Power Systems Inc. (NASDAQ:BLDP), and KB Home (NYSE:KBH). All of these stocks’ market caps are closest to OTTR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
COMM 26 597384 -3
HCSG 20 87235 2
BLDP 10 21232 4
KBH 25 291267 -4
Average 20.25 249280 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $249 million. That figure was $69 million in OTTR’s case. Commscope Holding Company Inc (NASDAQ:COMM) is the most popular stock in this table. On the other hand Ballard Power Systems Inc. (NASDAQ:BLDP) is the least popular one with only 10 bullish hedge fund positions. Otter Tail Corporation (NASDAQ:OTTR) 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 OTTR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); OTTR investors were disappointed as the stock returned -11.9% 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.