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Were Hedge Funds Right About Avista Corp (AVA)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Avista Corp (NYSE:AVA) based on that data and determine whether they were really smart about the stock.

Is Avista Corp (NYSE:AVA) a sound investment today? The smart money was in a bullish mood. The number of long hedge fund bets improved by 3 in recent months. Our calculations also showed that AVA 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a look at the new hedge fund action surrounding Avista Corp (NYSE:AVA).

How have hedgies been trading Avista Corp (NYSE:AVA)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AVA over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Avista Corp (NYSE:AVA), with a stake worth $117.4 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $8.2 million. Winton Capital Management, GLG Partners, and Holocene Advisors 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 Weld Capital Management allocated the biggest weight to Avista Corp (NYSE:AVA), around 0.54% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.14 percent of its 13F equity portfolio to AVA.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the largest position in Avista Corp (NYSE:AVA). Citadel Investment Group had $1.3 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Avista Corp (NYSE:AVA) but similarly valued. We will take a look at Hamilton Lane Incorporated (NASDAQ:HLNE), Companhia Paranaense de Energia – COPEL (NYSE:ELP), Envestnet Inc (NYSE:ENV), and Vertiv Holdings Co (NYSE:VRT). This group of stocks’ market caps are closest to AVA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HLNE 9 68042 -1
ELP 7 44533 0
ENV 17 74887 -1
VRT 39 540556 4
Average 18 182005 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $145 million in AVA’s case. Vertiv Holdings Co (NYSE:VRT) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 7 bullish hedge fund positions. Avista Corp (NYSE:AVA) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately AVA wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AVA investors were disappointed as the stock returned -12.4% since Q1 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 in 2020.

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