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Were Hedge Funds Right About Warming Up To Powell Industries, Inc. (POWL)?

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 Powell Industries, Inc. (NASDAQ:POWL).

Is Powell Industries, Inc. (NASDAQ:POWL) going to take off soon? The smart money is betting on the stock. The number of bullish hedge fund bets increased by 2 lately. Our calculations also showed that POWL isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

If you’d ask most traders, hedge funds are assumed to be underperforming, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our experts choose to focus on the top tier of this group, around 750 funds. These hedge fund managers handle bulk of the smart money’s total capital, and by watching their first-class picks, Insider Monkey has determined a few investment strategies that have historically defeated the market. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by around 5 percentage points per annum since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

POWL_oct2019

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s review the recent hedge fund action surrounding Powell Industries, Inc. (NASDAQ:POWL).

What have hedge funds been doing with Powell Industries, Inc. (NASDAQ:POWL)?

At Q2’s end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from the first quarter of 2019. By comparison, 9 hedge funds held shares or bullish call options in POWL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Chuck Royce

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in Powell Industries, Inc. (NASDAQ:POWL), worth close to $17.6 million, corresponding to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Prospector Partners, managed by John D. Gillespie, which holds a $4.7 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions comprise Chuck Royce’s Royce & Associates, Israel Englander’s Millennium Management and John Overdeck and David Siegel’s Two Sigma Advisors.

Now, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the biggest position in Powell Industries, Inc. (NASDAQ:POWL). Citadel Investment Group had $0.8 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.3 million position during the quarter. The only other fund with a brand new POWL position is Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Powell Industries, Inc. (NASDAQ:POWL). We will take a look at Azure Power Global Limited (NYSE:AZRE), PCM, Inc. (NASDAQ:PCMI), Oxford Lane Capital Corp. (NASDAQ:OXLC), and Clarus Corporation (NASDAQ:CLAR). This group of stocks’ market caps match POWL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AZRE 6 9530 0
PCMI 10 23013 -7
OXLC 3 1694 2
CLAR 14 59330 1
Average 8.25 23392 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $23 million. That figure was $32 million in POWL’s case. Clarus Corporation (NASDAQ:CLAR) is the most popular stock in this table. On the other hand Oxford Lane Capital Corp. (NASDAQ:OXLC) is the least popular one with only 3 bullish hedge fund positions. Powell Industries, Inc. (NASDAQ:POWL) is not the most popular stock in this group but hedge fund interest is still above 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. Hedge funds were also right about betting on POWL, though not to the same extent, as the stock returned 3.7% during the third quarter and outperformed the market as well.

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

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