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 Middlesex Water Company (NASDAQ:MSEX).
Is Middlesex Water (MSEX) a good stock to buy now? MSEX shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that MSEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MSEX to other stocks including Fresh Del Monte Produce Inc (NYSE:FDP), Sandy Spring Bancorp Inc. (NASDAQ:SASR), and Grupo Simec S.A.B. de C.V. (NYSE:SIM) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a gander at the fresh hedge fund action surrounding Middlesex Water Company (NASDAQ:MSEX).
How are hedge funds trading Middlesex Water Company (NASDAQ:MSEX)?
Heading into the fourth quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MSEX over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the biggest position in Middlesex Water Company (NASDAQ:MSEX), worth close to $28.9 million, comprising less than 0.1%% of its total 13F portfolio. On Renaissance Technologies’s heels is Impax Asset Management, managed by Ian Simm, which holds a $8.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism comprise Mario Gabelli’s GAMCO Investors, Stuart J. Zimmer’s Zimmer Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Middlesex Water Company (NASDAQ:MSEX), around 0.07% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to MSEX.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: AQR Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Zimmer Partners).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Middlesex Water Company (NASDAQ:MSEX) but similarly valued. We will take a look at Fresh Del Monte Produce Inc (NYSE:FDP), Sandy Spring Bancorp Inc. (NASDAQ:SASR), Grupo Simec S.A.B. de C.V. (NYSE:SIM), FARO Technologies, Inc. (NASDAQ:FARO), Adaptimmune Therapeutics plc (NASDAQ:ADAP), Constellium SE (NYSE:CSTM), and Marcus & Millichap Inc (NYSE:MMI). All of these stocks’ market caps match MSEX’s market cap.
|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 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $42 million in MSEX’s case. Constellium SE (NYSE:CSTM) is the most popular stock in this table. On the other hand Grupo Simec S.A.B. de C.V. (NYSE:SIM) is the least popular one with only 1 bullish hedge fund positions. Middlesex Water Company (NASDAQ:MSEX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MSEX is 25.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on MSEX as the stock returned 12.4% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.