It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The S&P 500 Index gained 7.6% in the 12 month-period that ended November 21, while less than 49% of its stocks beat the benchmark. In contrast, the 30 most popular mid-cap stocks among the top hedge fund investors tracked by the Insider Monkey team returned 18% over the same period, which provides evidence that these money managers do have great stock picking abilities. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Spark Energy Inc (NASDAQ:SPKE).
Spark Energy Inc (NASDAQ:SPKE) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of September. At the end of this article we will also compare SPKE to other stocks including Donegal Group Inc (NASDAQ:DGICA), Casella Waste Systems Inc. (NASDAQ:CWST), and Independence Realty Trust Inc (NYSEMKT:IRT) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Keeping this in mind, we’re going to analyze the key action surrounding Spark Energy Inc (NASDAQ:SPKE).
How have hedgies been trading Spark Energy Inc (NASDAQ:SPKE)?
Heading into the fourth quarter of 2016, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, flat from one quarter earlier. By comparison, 1 hedge funds held shares or bullish call options in SPKE heading into this year. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Cliff Asness’ AQR Capital Management holds the biggest position in Spark Energy Inc (NASDAQ:SPKE). According to regulatory filings, the fund has a $5.7 million position in the stock. Sitting at the No. 2 spot is Renaissance Technologies, one of the largest hedge funds in the world, with a $ 1.76 million stake. Remaining peers with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Glenn Russell Dubin’s Highbridge Capital Management and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: D E Shaw. 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 Springbok Capital).
Let’s go over hedge fund activity in other stocks similar to Spark Energy Inc (NASDAQ:SPKE). These stocks are Donegal Group Inc (NASDAQ:DGICA), Casella Waste Systems Inc. (NASDAQ:CWST), Independence Realty Trust Inc (NYSEMKT:IRT), and Stonegate Bank (NASDAQ:SGBK). This group of stocks’ market valuations resemble SPKE’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $12 million in SPKE’s case. Independence Realty Trust Inc (NYSEMKT:IRT) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 3 bullish hedge fund positions. Spark Energy Inc (NASDAQ:SPKE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard IRT might be a better candidate to consider taking a long position in.