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Hedge Funds Have Never Been More Bullish On American Water Works Company, Inc. (AWK)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards American Water Works Company, Inc. (NYSE:AWK).

Hedge fund interest in American Water Works Company, Inc. (NYSE:AWK) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Pembina Pipeline Corp (NYSE:PBA), Splunk Inc (NASDAQ:SPLK), and Freeport-McMoRan Inc. (NYSE:FCX) to gather more data points.

To most investors, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are more than 8000 funds trading at the moment, Our researchers choose to focus on the crème de la crème of this club, approximately 750 funds. Most estimates calculate that this group of people orchestrate the majority of the hedge fund industry’s total asset base, and by tailing their unrivaled stock picks, Insider Monkey has uncovered numerous investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship hedge fund strategy outperformed the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.

Bernard Lambilliotte - Ecofin

Let’s go over the fresh hedge fund action surrounding American Water Works Company, Inc. (NYSE:AWK).

How are hedge funds trading American Water Works Company, Inc. (NYSE:AWK)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in AWK over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

AWK_june2019

The largest stake in American Water Works Company, Inc. (NYSE:AWK) was held by Impax Asset Management, which reported holding $250.2 million worth of stock at the end of March. It was followed by Renaissance Technologies with a $86.4 million position. Other investors bullish on the company included AQR Capital Management, Zimmer Partners, and Osterweis Capital Management.

Due to the fact that American Water Works Company, Inc. (NYSE:AWK) has faced declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of fund managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest investment of the 700 funds watched by Insider Monkey, valued at about $26.1 million in stock. Peter J. Hark’s fund, Shelter Harbor Advisors, also dumped its stock, about $6.8 million worth. These bearish behaviors are interesting, 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 similar to American Water Works Company, Inc. (NYSE:AWK). These stocks are Pembina Pipeline Corp (NYSE:PBA), Splunk Inc (NASDAQ:SPLK), Freeport-McMoRan Inc. (NYSE:FCX), and Cerner Corporation (NASDAQ:CERN). This group of stocks’ market values are similar to AWK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PBA 15 102666 1
SPLK 29 317583 4
FCX 42 1413867 -1
CERN 29 828412 7
Average 28.75 665632 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $666 million. That figure was $610 million in AWK’s case. Freeport-McMoRan Inc. (NYSE:FCX) is the most popular stock in this table. On the other hand Pembina Pipeline Corp (NYSE:PBA) is the least popular one with only 15 bullish hedge fund positions. American Water Works Company, Inc. (NYSE:AWK) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on AWK as the stock returned 7.9% during the same time frame and outperformed the market by an even larger margin.

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

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