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. 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 have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider California Water Service Group (NYSE:CWT) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
California Water Service Group (NYSE:CWT) investors should pay attention to an increase in support from the world’s most elite money managers in recent months. CWT was in 20 hedge funds’ portfolios at the end of December. There were 17 hedge funds in our database with CWT positions at the end of the previous quarter. Our calculations also showed that CWT 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).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the new hedge fund action encompassing California Water Service Group (NYSE:CWT).
What does smart money think about California Water Service Group (NYSE:CWT)?
At Q4’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the previous quarter. By comparison, 8 hedge funds held shares or bullish call options in CWT a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, holds the biggest position in California Water Service Group (NYSE:CWT). Renaissance Technologies has a $11.5 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Winton Capital Management, managed by David Harding, which holds a $10.6 million position; 0.1% of its 13F portfolio is allocated to the company. Some other peers that hold long positions consist of Israel Englander’s Millennium Management, Donald Sussman’s Paloma Partners and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Arjuna Capital allocated the biggest weight to California Water Service Group (NYSE:CWT), around 0.32% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.15 percent of its 13F equity portfolio to CWT.
Consequently, key money managers were breaking ground themselves. Paloma Partners, managed by Donald Sussman, established the most outsized position in California Water Service Group (NYSE:CWT). Paloma Partners had $2.7 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $1.6 million investment in the stock during the quarter. The only other fund with a brand new CWT position is Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as California Water Service Group (NYSE:CWT) but similarly valued. These stocks are WESCO International, Inc. (NYSE:WCC), Dorman Products Inc. (NASDAQ:DORM), Amicus Therapeutics, Inc. (NASDAQ:FOLD), and Insight Enterprises, Inc. (NASDAQ:NSIT). This group of stocks’ market values are closest to CWT’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WCC | 26 | 631182 | 6 |
| DORM | 13 | 54185 | -2 |
| FOLD | 35 | 854075 | 7 |
| NSIT | 18 | 125686 | -3 |
| Average | 23 | 416282 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $416 million. That figure was $43 million in CWT’s case. Amicus Therapeutics, Inc. (NASDAQ:FOLD) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 13 bullish hedge fund positions. California Water Service Group (NYSE:CWT) 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 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. A small number of hedge funds were also right about betting on CWT as the stock returned -11.1% during the same time period and outperformed the market by an even larger margin.
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.
