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Did Hedge Funds Drop The Ball On Woodward Inc (WWD) ?

Reymerlyn Martin

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 750 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Woodward Inc (NASDAQ:WWD), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Hedge fund interest in Woodward Inc (NASDAQ:WWD) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Alkermes Plc (NASDAQ:ALKS), Proofpoint Inc (NASDAQ:PFPT), and Hudson Pacific Properties Inc (NYSE:HPP) to gather more data points.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 32 percentage points since May 2014 through March 12, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Mario Gabelli

We're going to go over the fresh hedge fund action surrounding Woodward Inc (NASDAQ:WWD).

How have hedgies been trading Woodward Inc (NASDAQ:WWD)?

At Q4's end, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in WWD a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

WWD_apr2019

Among these funds, Royce & Associates held the most valuable stake in Woodward Inc (NASDAQ:WWD), which was worth $68.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $47.2 million worth of shares. Moreover, Citadel Investment Group, Holocene Advisors, and GAMCO Investors were also bullish on Woodward Inc (NASDAQ:WWD), allocating a large percentage of their portfolios to this stock.

Because Woodward Inc (NASDAQ:WWD) has experienced declining sentiment from the smart money, we can see that there was a specific group of fund managers that decided to sell off their full holdings by the end of the third quarter. At the top of the heap, Israel Englander's Millennium Management dumped the largest stake of the 700 funds monitored by Insider Monkey, valued at about $4.5 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund dropped about $1 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Woodward Inc (NASDAQ:WWD) but similarly valued. These stocks are Alkermes Plc (NASDAQ:ALKS), Proofpoint Inc (NASDAQ:PFPT), Hudson Pacific Properties Inc (NYSE:HPP), and Banco de Chile (NYSE:BCH). This group of stocks' market values resemble WWD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALKS,19,175362,3 PFPT,27,501166,2 HPP,12,361481,-1 BCH,4,74330,2 Average,15.5,278085,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $194 million in WWD's case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Woodward Inc (NASDAQ:WWD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on WWD as the stock returned 36.7% and outperformed the market by an even larger margin.

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

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