Hedge Funds Cautiously Watching Sunnova Energy International Inc. (NOVA)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. In this article we look at what those investors think of Sunnova Energy International Inc. (NYSE:NOVA).

Sunnova Energy International Inc. (NYSE:NOVA) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hercules Capital Inc (NYSE:HTGC), The RMR Group Inc. (NASDAQ:RMR), and Revance Therapeutics Inc (NASDAQ:RVNC) to gather more data points. Our calculations also showed that NOVA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. 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. Now let’s go over the latest hedge fund action surrounding Sunnova Energy International Inc. (NYSE:NOVA).

What does smart money think about Sunnova Energy International Inc. (NYSE:NOVA)?

At Q1’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in NOVA over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Magnetar Capital held the most valuable stake in Sunnova Energy International Inc. (NYSE:NOVA), which was worth $23.2 million at the end of the third quarter. On the second spot was Adage Capital Management which amassed $11.2 million worth of shares. Encompass Capital Advisors, Ardsley Partners, and Driehaus Capital 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 Ardsley Partners allocated the biggest weight to Sunnova Energy International Inc. (NYSE:NOVA), around 1.55% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, designating 1.23 percent of its 13F equity portfolio to NOVA.

Seeing as Sunnova Energy International Inc. (NYSE:NOVA) has experienced falling interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedge funds that slashed their positions entirely last quarter. At the top of the heap, Anand Parekh’s Alyeska Investment Group said goodbye to the largest stake of the “upper crust” of funds watched by Insider Monkey, worth close to $3.6 million in stock. Jos Shaver’s fund, Electron Capital Partners, also cut its stock, about $0.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Sunnova Energy International Inc. (NYSE:NOVA) but similarly valued. We will take a look at Hercules Capital Inc (NYSE:HTGC), The RMR Group Inc. (NASDAQ:RMR), Revance Therapeutics Inc (NASDAQ:RVNC), and ePlus Inc. (NASDAQ:PLUS). This group of stocks’ market valuations resemble NOVA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HTGC 16 61309 3
RMR 14 76666 -7
RVNC 11 49067 -5
PLUS 13 31309 0
Average 13.5 54588 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $50 million in NOVA’s case. Hercules Capital Inc (NYSE:HTGC) is the most popular stock in this table. On the other hand Revance Therapeutics Inc (NASDAQ:RVNC) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Sunnova Energy International Inc. (NYSE:NOVA) is even less popular than RVNC. Hedge funds clearly dropped the ball on NOVA as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on NOVA as the stock returned 92.7% so far in the second quarter and outperformed the market by an even larger margin.

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