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Were Hedge Funds Right About Souring On Atlantic Power Corp (AT)?

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 Atlantic Power Corp (NYSE:AT) based on that data and determine whether they were really smart about the stock.

Atlantic Power Corp (NYSE:AT) shareholders have witnessed a decrease in activity from the world’s largest hedge funds of late. Our calculations also showed that AT 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the recent hedge fund action encompassing Atlantic Power Corp (NYSE:AT).

Hedge fund activity in Atlantic Power Corp (NYSE:AT)

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AT over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Among these funds, Mangrove Partners held the most valuable stake in Atlantic Power Corp (NYSE:AT), which was worth $16 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $1.5 million worth of shares. D E Shaw, GLG Partners, and Two Sigma 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 Mangrove Partners allocated the biggest weight to Atlantic Power Corp (NYSE:AT), around 2.21% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 0.46 percent of its 13F equity portfolio to AT.

Seeing as Atlantic Power Corp (NYSE:AT) has witnessed falling interest from the smart money, we can see that there exists a select few money managers who sold off their entire stakes heading into Q4. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP dumped the biggest stake of the 750 funds watched by Insider Monkey, comprising an estimated $0 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund sold off about $0 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Atlantic Power Corp (NYSE:AT). These stocks are IRSA Propiedades Comerciales S.A. (NASDAQ:IRCP), Allied Motion Technologies, Inc. (NASDAQ:AMOT), Legacy Housing Corporation (NASDAQ:LEGH), and China Distance Education Hldgs Ltd (NYSE:DL). This group of stocks’ market values match AT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IRCP 4 7670 0
AMOT 13 36277 2
LEGH 4 5281 0
DL 2 3460 -1
Average 5.75 13172 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $22 million in AT’s case. Allied Motion Technologies, Inc. (NASDAQ:AMOT) is the most popular stock in this table. On the other hand China Distance Education Hldgs Ltd (NYSE:DL) is the least popular one with only 2 bullish hedge fund positions. Atlantic Power Corp (NYSE:AT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately AT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AT were disappointed as the stock returned -6.5% during the same time period 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 many of these stocks already outperformed the market so far this year.

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