Here is What Hedge Funds Think About SJW Group (SJW)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards SJW Group (NYSE:SJW) at the end of the first quarter and determine whether the smart money was really smart about this stock.

SJW Group (NYSE:SJW) has experienced a decrease in support from the world’s most elite money managers of late. Our calculations also showed that SJW 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.

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 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 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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. With all of this in mind let’s take a peek at the fresh hedge fund action encompassing SJW Group (NYSE:SJW).

How are hedge funds trading SJW Group (NYSE:SJW)?

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards SJW over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in SJW Group (NYSE:SJW), which was worth $63.2 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $16.1 million worth of shares. GAMCO Investors, Citadel Investment Group, and Millennium Management 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 Royce & Associates allocated the biggest weight to SJW Group (NYSE:SJW), around 0.22% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.09 percent of its 13F equity portfolio to SJW.

Due to the fact that SJW Group (NYSE:SJW) has witnessed declining sentiment from hedge fund managers, it’s easy to see that there is a sect of hedgies that slashed their full holdings in the first quarter. Intriguingly, Steve Cohen’s Point72 Asset Management dumped the biggest stake of all the hedgies followed by Insider Monkey, worth close to $12.8 million in stock. Peter J. Hark’s fund, Shelter Harbor Advisors, also sold off its stock, about $11.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to SJW Group (NYSE:SJW). These stocks are YPF Sociedad Anonima (NYSE:YPF), Navistar International Corp (NYSE:NAV), Belden Inc. (NYSE:BDC), and Evertec Inc (NYSE:EVTC). All of these stocks’ market caps are similar to SJW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YPF 13 24977 -2
NAV 36 760172 9
BDC 14 53342 2
EVTC 19 197628 0
Average 20.5 259030 2.25

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 $259 million. That figure was $99 million in SJW’s case. Navistar International Corp (NYSE:NAV) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SJW Group (NYSE:SJW) is even less popular than YPF. Hedge funds dodged a bullet by taking a bearish stance towards SJW. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately SJW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SJW investors were disappointed as the stock returned 8.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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