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 Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Otter Tail Corporation (NASDAQ:OTTR).
Otter Tail Corporation (NASDAQ:OTTR) was in 11 hedge funds’ portfolios at the end of the fourth quarter of 2019. OTTR has experienced a decrease in support from the world’s most elite money managers recently. There were 15 hedge funds in our database with OTTR holdings at the end of the previous quarter. Our calculations also showed that OTTR 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).
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.
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 this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action encompassing Otter Tail Corporation (NASDAQ:OTTR).
What does smart money think about Otter Tail Corporation (NASDAQ:OTTR)?
At Q4’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in OTTR over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Otter Tail Corporation (NASDAQ:OTTR) was held by Renaissance Technologies, which reported holding $44.8 million worth of stock at the end of September. It was followed by GAMCO Investors with a $15.9 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Algert Coldiron Investors. In terms of the portfolio weights assigned to each position Zebra Capital Management allocated the biggest weight to Otter Tail Corporation (NASDAQ:OTTR), around 0.81% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, designating 0.29 percent of its 13F equity portfolio to OTTR.
Because Otter Tail Corporation (NASDAQ:OTTR) has experienced a decline in interest from the smart money, logic holds that there were a few hedgies that slashed their positions entirely last quarter. It’s worth mentioning that Donald Sussman’s Paloma Partners said goodbye to the largest investment of the 750 funds watched by Insider Monkey, totaling about $0.6 million in stock. Ronald Hua’s fund, Qtron Investments, also dumped its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 4 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Otter Tail Corporation (NASDAQ:OTTR) but similarly valued. We will take a look at CommVault Systems, Inc. (NASDAQ:CVLT), BancFirst Corporation (NASDAQ:BANF), Patterson-UTI Energy, Inc. (NASDAQ:PTEN), and Prestige Brands Holdings, Inc. (NYSE:PBH). This group of stocks’ market values are similar to OTTR’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 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $204 million. That figure was $80 million in OTTR’s case. CommVault Systems, Inc. (NASDAQ:CVLT) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 6 bullish hedge fund positions. Otter Tail Corporation (NASDAQ:OTTR) 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 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on OTTR as the stock returned -9.6% 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.