Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Atlantica Yield plc (NASDAQ:AY) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Atlantica Yield plc (NASDAQ:AY) a buy right now? Hedge funds are in a pessimistic mood. The number of bullish hedge fund bets were cut by 3 recently. Our calculations also showed that AY 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). AY was in 16 hedge funds’ portfolios at the end of December. There were 19 hedge funds in our database with AY holdings at the end of the previous quarter.
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.
Now let’s take a glance at the latest hedge fund action regarding Atlantica Yield plc (NASDAQ:AY).
What does smart money think about Atlantica Yield plc (NASDAQ:AY)?
At Q4’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. By comparison, 22 hedge funds held shares or bullish call options in AY a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Among these funds, GLG Partners held the most valuable stake in Atlantica Yield plc (NASDAQ:AY), which was worth $23.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $21.3 million worth of shares. Two Sigma Advisors, Renaissance Technologies, and Moore Global Investments 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 Ecofin Ltd allocated the biggest weight to Atlantica Yield plc (NASDAQ:AY), around 1.1% of its 13F portfolio. Ardsley Partners is also relatively very bullish on the stock, designating 1.04 percent of its 13F equity portfolio to AY.
Because Atlantica Yield plc (NASDAQ:AY) has faced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their full holdings last quarter. Interestingly, Michel Massoud’s Melqart Asset Management dumped the largest stake of all the hedgies monitored by Insider Monkey, valued at close to $21 million in stock. Zilvinas Mecelis’s fund, Covalis Capital, also dropped its stock, about $9.4 million worth. These moves are important to note, as total hedge fund interest fell by 3 funds last quarter.
Let’s also examine hedge fund activity in other stocks similar to Atlantica Yield plc (NASDAQ:AY). These stocks are Fox Factory Holding Corp (NASDAQ:FOXF), PennyMac Financial Services Inc (NYSE:PFSI), WD-40 Company (NASDAQ:WDFC), and Franklin Electric Co. (NASDAQ:FELE). This group of stocks’ market values are closest to AY’s market value.
|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 15 hedge funds with bullish positions and the average amount invested in these stocks was $160 million. That figure was $123 million in AY’s case. WD-40 Company (NASDAQ:WDFC) is the most popular stock in this table. On the other hand Fox Factory Holding Corp (NASDAQ:FOXF) is the least popular one with only 13 bullish hedge fund positions. Atlantica Yield plc (NASDAQ:AY) is not the most popular stock in this group but hedge fund interest is still above 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 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. Hedge funds were also right about betting on AY as the stock returned -15.7% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.