Here’s What Hedge Funds Think About NorthWestern Corporation (NWE)

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 5 months of this year through May 30th the Standard and Poor’s 500 Index returned approximately 12.1% (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 18.7% during the same 5-month period, with the majority of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only a fraction of this value due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like NorthWestern Corporation (NYSE:NWE).

Hedge fund interest in NorthWestern Corporation (NYSE:NWE) 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 Covetrus, Inc. (NASDAQ:CVET), Macquarie Infrastructure Corporation (NYSE:MIC), and Blueprint Medicines Corporation (NASDAQ:BPMC) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

We’re going to analyze the key hedge fund action encompassing NorthWestern Corporation (NYSE:NWE).

Hedge fund activity in NorthWestern Corporation (NYSE:NWE)

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NWE over the last 15 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, AQR Capital Management held the most valuable stake in NorthWestern Corporation (NYSE:NWE), which was worth $98.2 million at the end of the first quarter. On the second spot was GLG Partners which amassed $25.8 million worth of shares. Moreover, GAMCO Investors, Blackstart Capital, and Millennium Management were also bullish on NorthWestern Corporation (NYSE:NWE), allocating a large percentage of their portfolios to this stock.

Judging by the fact that NorthWestern Corporation (NYSE:NWE) has experienced falling interest from the smart money, it’s easy to see that there was a specific group of hedge funds that slashed their positions entirely by the end of the third quarter. At the top of the heap, Peter J. Hark’s Shelter Harbor Advisors dropped the biggest investment of all the hedgies tracked by Insider Monkey, totaling about $5.9 million in stock. Minhua Zhang’s fund, Weld Capital Management, also said goodbye to its stock, about $0.6 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as NorthWestern Corporation (NYSE:NWE) but similarly valued. We will take a look at Covetrus, Inc. (NASDAQ:CVET), Macquarie Infrastructure Corporation (NYSE:MIC), Blueprint Medicines Corporation (NASDAQ:BPMC), and Liberty Latin America Ltd. (NASDAQ:LILAK). All of these stocks’ market caps are similar to NWE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CVET 18 537367 18
MIC 24 221709 -4
BPMC 32 632126 10
LILAK 18 416954 -1
Average 23 452039 5.75

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 $452 million. That figure was $189 million in NWE’s case. Blueprint Medicines Corporation (NASDAQ:BPMC) is the most popular stock in this table. On the other hand Covetrus, Inc. (NASDAQ:CVET) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks NorthWestern Corporation (NYSE:NWE) is even less popular than CVET. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on NWE, though not to the same extent, as the stock returned 4.9% during the same time frame and outperformed the market as well.

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