Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Wynn Resorts, Limited (NASDAQ:WYNN) investors should be aware of a decrease in hedge fund interest lately. Our calculations also showed that WYNN isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 stocks that are in our short portfolio.
[caption id="attachment_745223" align="aligncenter" width="473"] Daniel Sundheim of D1 Capital Partners[/caption]
We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let's take a peek at the new hedge fund action surrounding Wynn Resorts, Limited (NASDAQ:WYNN).
What does smart money think about Wynn Resorts, Limited (NASDAQ:WYNN)?
At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WYNN over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Wynn Resorts, Limited (NASDAQ:WYNN) was held by Egerton Capital Limited, which reported holding $407.1 million worth of stock at the end of September. It was followed by Sculptor Capital with a $163 million position. Other investors bullish on the company included D1 Capital Partners, Southeastern Asset Management, and Melvin Capital Management. In terms of the portfolio weights assigned to each position Columbus Hill Capital Management allocated the biggest weight to Wynn Resorts, Limited (NASDAQ:WYNN), around 5.2% of its 13F portfolio. Beddow Capital Management is also relatively very bullish on the stock, earmarking 3.07 percent of its 13F equity portfolio to WYNN.
Since Wynn Resorts, Limited (NASDAQ:WYNN) has faced declining sentiment from the smart money, logic holds that there is a sect of hedgies who were dropping their entire stakes last quarter. At the top of the heap, Lone Pine Capital dropped the biggest investment of all the hedgies followed by Insider Monkey, valued at about $670.4 million in stock. Lee Ainslie's fund, Maverick Capital, also cut its stock, about $34.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Wynn Resorts, Limited (NASDAQ:WYNN). We will take a look at Regency Centers Corp (NASDAQ:REG), Cenovus Energy Inc (NYSE:CVE), Continental Resources, Inc. (NYSE:CLR), and Alleghany Corporation (NYSE:Y). This group of stocks' market caps resemble WYNN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REG,16,233615,4 CVE,25,635156,8 CLR,37,434858,3 Y,26,404893,0 Average,26,427131,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $427 million. That figure was $1171 million in WYNN's case. Continental Resources, Inc. (NYSE:CLR) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 16 bullish hedge fund positions. Wynn Resorts, Limited (NASDAQ:WYNN) 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on WYNN as the stock returned 46.4% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.