What Do Hedge Funds Think About Water Stocks Amid Increasing Concerns Over Water Scarcity?

Earlier this year, the World Economic Forum listed water crises as the main global risk for the next ten years. It appears that the world is losing the battle for an extremely necessary natural resource, namely water. Mario Gabelli, the Chief Executive Officer of GAMCO Investors, revealed earlier this year that he was particularly interested in the water segment within the broader utilities sector. With water coming out as the number-one global concern in the years ahead, retail investors seeking to get exposure to the relatively safe, somewhat boring and income-paying public utility sector should definitely have a look at water utility stocks. Grim outlooks about an imminent increase in scarcity for this sought-after and crucial natural resource, as well as higher instances of contaminated public water supplies, will make the water sector even more appealing among both larger-scale investors and smaller-scale retail investors. For that reason, Insider Monkey decided to compile a list of five water stocks favored by the hedge funds tracked by our team.

At Insider Monkey, we track around 770 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. York Water Co (NASDAQ:YORW)

– Investors with long positions as of March 31: 6

– Aggregate value of investors’ holdings as of March 31: $13.35 Million

There were six hedge funds followed by Insider Monkey invested in York Water Co (NASDAQ:YORW) at the end of the March quarter, as compared with only four registered at the end of the previous quarter. Meanwhile, the overall value of those funds’ equity investments in York Water rose by nearly 39% quarter-over-quarter to $13.35 million, partially due to a 22% increase in the value of York Water shares. York Water, whose primary business involves impounding, purifying and distributing water, has seen its market value gain 25% since the beginning of 2016. The company reported operating revenues of $11.28 million for the first quarter of 2016, which marks an increase of $69,000 year-over-year. The increase was driven by a higher number of customers, as well as higher revenue from sewer billing and collection services. York Water paid a cash dividend of $0.1555 for the first quarter of 2016, which equates to an annual dividend yield of 2.08%. Royce & Associates, founded by Chuck Royce, owned 166,630 shares of York Water Co (NASDAQ:YORW) at the end of March.

#4. Middlesex Water Company (NASDAQ:MSEX)

– Investors with long positions as of March 31: 8

– Aggregate value of investors’ holdings as of March 31: $17.44 Million

Middlesex Water Company (NASDAQ:MSEX) has received some love from the hedge funds monitored by our team, as the number of funds with stakes in the company increased to eight from six during the first quarter. Similarly, the dollar value of those stakes grew by 49% sequentially to $17.44 million, partly because of a 16% price appreciation of Middlesex Water shares. The shares of the water utility have gained 61% since the beginning of the year. In late April, Middlesex Water’s boardroom approved a quarterly dividend of nearly $0.20 per share, which offers shareholders an annual dividend yield of 1.87%. Meanwhile, the company’s top line for the first three months of 2016 increased by $1.8 million to $30.6 million, mainly due to rate increases and higher water demand. Jim Simons’ Renaissance Technologies LLC upped its position in Middlesex Water Company (NASDAQ:MSEX) by 16% during the first quarter to 347,200 shares.

#3. California Water Service Group (NYSE:CWT)

– Investors with long positions as of March 31: 8

– Aggregate value of investors’ holdings as of March 31: $65.12 Million

California Water Service Group (NYSE:CWT) has lost some appeal among the asset managers followed by our team given that the number of managers with equity investments in the company fell to eight from nine during the January-to-March period. Meanwhile, the aggregate value of those investments decreased to $65.12 million from $65.42 million quarter-over-quarter even though the shares of California Water Service gained 16% during the quarter. The eight managers invested in the company accumulated 5% of its outstanding common stock. The holding company that provides water utility and related services in California, Washington, New Mexico and Hawaii has seen its market capitalization jump by 48% since the start of 2016. California Water Service Group paid a dividend $0.1725 per share for the first quarter, up from $0.1675 paid for the same period of the prior year. The first-quarter dividend marked the company’s 284^th consecutive quarterly dividend. Ian Simm’s Impax Asset Management reported owning 1.81 million shares of California Water Service Group (NYSE:CWT) in its latest 13F.

#2. American States Water Co (NYSE:AWR)

– Investors with long positions as of March 31: 9

– Aggregate value of investors’ holdings as of March 31: $46.88 Million

American States Water Co (NYSE:AWR) received more attention from the segment of the hedge fund industry followed by Insider Monkey during the first three months of 2016, when the number of funds from our system with long positions in the company spiked to nine from five quarter-over-quarter. The overall value of those positions rose by a little less than 2% sequentially to $46.88 million despite a 6% decline in the value of American States Water shares. The provider of water and electric services to residential, industrial and other customers in the U.S. has increased its annual dividend for 61 consecutive years, with the company residing the exclusive list of Dividend Kings. For income-seeking investors, American States Water provides an annual dividend of 2.07% or $0.896 per share. The company’s share price has gained 3% since the beginning of 2016. Paul Tudor Jones’ Tudor Investment Corp added an 11,600-share position in American States Water Co (NYSE:AWR) to its portfolio during the March quarter.

#1. American Water Works Company Inc. (NYSE:AWK)

– Investors with long positions as of March 31: 21

– Aggregate value of investors’ holdings as of March 31: $329.67 Million

The hedge fund sentiment towards American Water Works Company Inc. (NYSE:AWK) increased during the January-March period, with the number of funds from our database invested in the company climbing to 21 from 19 quarter-over-quarter. The dollar value of those funds’ equity investments in American Water Works rose by 14% sequentially to $329.67 million. The increase was mainly attributable to a 16% gain in the share price of the company’s stock, so some funds were actually trimming their exposure to the company during the first quarter. The largest publicly-traded water and wastewater utility company in the United States has seen its market value increase by 41% since the beginning of 2016. Investors do not necessarily need to sacrifice growth to receive stable dividend payments. Shares of American Water Works Company have skyrocketed by an impressive 298% since the company’s initial public offering in April of 2008. In late April, the company’s Board declared a quarterly cash dividend of $0.375 per share, up from the dividend of $0.34 per share paid in the first quarter. John Osterweis’ Osterweis Capital Management owns 1.19 million shares of American Water Works Company Inc. (NYSE:AWK) as of March 31.

Disclosure: None