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Hedge Funds Aren’t Done Buying Evoqua Water Technologies Corp. (AQUA)

We at Insider Monkey have gone over 821 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, near the height of the coronavirus market crash. In this article, we look at what those funds think of Evoqua Water Technologies Corp. (NYSE:AQUA) based on that data.

Is Evoqua Water Technologies Corp. (NYSE:AQUA) a sound investment right now? Investors who are in the know are becoming hopeful. The number of bullish hedge fund bets inched up by 7 in recent months. Our calculations also showed that AQUA 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.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

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 these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a gander at the latest hedge fund action surrounding Evoqua Water Technologies Corp. (NYSE:AQUA).

How have hedgies been trading Evoqua Water Technologies Corp. (NYSE:AQUA)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 13 hedge funds with a bullish position in AQUA a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Evoqua Water Technologies Corp. (NYSE:AQUA) was held by P2 Capital Partners, which reported holding $48.2 million worth of stock at the end of September. It was followed by Impax Asset Management with a $23 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Marshall Wace LLP. In terms of the portfolio weights assigned to each position P2 Capital Partners allocated the biggest weight to Evoqua Water Technologies Corp. (NYSE:AQUA), around 5.77% of its 13F portfolio. Pinz Capital is also relatively very bullish on the stock, setting aside 3.38 percent of its 13F equity portfolio to AQUA.

As aggregate interest increased, key hedge funds were breaking ground themselves. DSAM Partners, managed by Guy Shahar, assembled the biggest position in Evoqua Water Technologies Corp. (NYSE:AQUA). DSAM Partners had $3.5 million invested in the company at the end of the quarter. Josh Donfeld and David Rogers’s Castle Hook Partners also made a $1.5 million investment in the stock during the quarter. The following funds were also among the new AQUA investors: Matthew L Pinz’s Pinz Capital, Simon Sadler’s Segantii Capital, and Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Evoqua Water Technologies Corp. (NYSE:AQUA) but similarly valued. We will take a look at TowneBank (NASDAQ:TOWN), Four Corners Property Trust, Inc. (NYSE:FCPT), Sogou Inc. (NYSE:SOGO), and Cavco Industries, Inc. (NASDAQ:CVCO). All of these stocks’ market caps resemble AQUA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOWN 4 25151 -2
FCPT 14 53932 -1
SOGO 6 9617 -5
CVCO 20 122025 0
Average 11 52681 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $125 million in AQUA’s case. Cavco Industries, Inc. (NASDAQ:CVCO) is the most popular stock in this table. On the other hand TowneBank (NASDAQ:TOWN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Evoqua Water Technologies Corp. (NYSE:AQUA) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on AQUA as the stock returned 67.8% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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