How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SJW Group (NYSE:SJW).
SJW Group (NYSE:SJW) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 15 hedge funds’ portfolios at the end of the second quarter of 2019. 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 Plexus Corp. (NASDAQ:PLXS), Kaman Corporation (NYSE:KAMN), and WillScot Corporation (NASDAQ:WSC) to gather more data points. Our calculations also showed that SJW isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a peek at the fresh hedge fund action surrounding SJW Group (NYSE:SJW).
How have hedgies been trading SJW Group (NYSE:SJW)?
At Q2’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in SJW a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in SJW Group (NYSE:SJW) was held by Renaissance Technologies, which reported holding $57.7 million worth of stock at the end of March. It was followed by Point72 Asset Management with a $26.6 million position. Other investors bullish on the company included Royce & Associates, Shelter Harbor Advisors, and Blackstart Capital.
Due to the fact that SJW Group (NYSE:SJW) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes in the second quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising close to $1 million in stock. David Costen Haley’s fund, HBK Investments, also cut its stock, about $0.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SJW Group (NYSE:SJW) but similarly valued. These stocks are Plexus Corp. (NASDAQ:PLXS), Kaman Corporation (NYSE:KAMN), WillScot Corporation (NASDAQ:WSC), and Zuora, Inc. (NYSE:ZUO). All of these stocks’ market caps resemble SJW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PLXS | 8 | 50959 | -1 |
| KAMN | 14 | 237265 | 2 |
| WSC | 23 | 186226 | 1 |
| ZUO | 19 | 190779 | -2 |
| Average | 16 | 166307 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $168 million in SJW’s case. WillScot Corporation (NASDAQ:WSC) is the most popular stock in this table. On the other hand Plexus Corp. (NASDAQ:PLXS) is the least popular one with only 8 bullish hedge fund positions. SJW Group (NYSE:SJW) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on SJW as the stock returned 12.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
