Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Azure Power Global Limited (NYSE:AZRE)? The smart money sentiment can provide an answer to this question.
Azure Power Global Limited (NYSE:AZRE) shareholders have witnessed an increase in support from the world's most elite money managers lately. Azure Power Global Limited (NYSE:AZRE) was in 4 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 6. There were 3 hedge funds in our database with AZRE positions at the end of the second quarter. Our calculations also showed that AZRE isn't among the 30 most popular stocks among hedge funds (click for Q3 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Richard Driehaus of Driehaus Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world 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. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to view the recent hedge fund action surrounding Azure Power Global Limited (NYSE:AZRE).
Hedge fund activity in Azure Power Global Limited (NYSE:AZRE)
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AZRE over the last 21 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Renaissance Technologies has the number one position in Azure Power Global Limited (NYSE:AZRE), worth close to $8.4 million, corresponding to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is Till Bechtolsheimer of Arosa Capital Management, with a $4 million position; 0.6% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism encompass Richard Driehaus's Driehaus Capital, Steve Cohen's Point72 Asset Management and . In terms of the portfolio weights assigned to each position Arosa Capital Management allocated the biggest weight to Azure Power Global Limited (NYSE:AZRE), around 0.62% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.04 percent of its 13F equity portfolio to AZRE.
Consequently, key hedge funds were breaking ground themselves. Driehaus Capital, managed by Richard Driehaus, created the most valuable position in Azure Power Global Limited (NYSE:AZRE). Driehaus Capital had $2.1 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also initiated a $0.4 million position during the quarter.
Let's go over hedge fund activity in other stocks similar to Azure Power Global Limited (NYSE:AZRE). We will take a look at Industrial Logistics Properties Trust (NASDAQ:ILPT), The Michaels Companies Inc (NASDAQ:MIK), Southwestern Energy Company (NYSE:SWN), Global Net Lease, Inc. (NYSE:GNL), Perficient, Inc. (NASDAQ:PRFT), Century Communities, Inc (NYSE:CCS), and SiTime Corporation (NASDAQ:SITM). This group of stocks' market values match AZRE's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ILPT,9,16849,0 MIK,38,285583,17 SWN,19,217863,4 GNL,7,10377,0 PRFT,17,74006,-4 CCS,20,137952,-1 SITM,6,97608,-6 Average,16.6,120034,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $120 million. That figure was $15 million in AZRE's case. The Michaels Companies Inc (NASDAQ:MIK) is the most popular stock in this table. On the other hand SiTime Corporation (NASDAQ:SITM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Azure Power Global Limited (NYSE:AZRE) is even less popular than SITM. Our overall hedge fund sentiment score for AZRE is 26. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on AZRE as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on AZRE as the stock returned 24.1% since Q3 (through November 27th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.