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We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards WestRock Company (NYSE:WRK) and determine whether hedge funds skillfully traded this stock.
Is WestRock Company (NYSE:WRK) ready to rally soon? The smart money was taking a bullish view. The number of bullish hedge fund bets inched up by 6 recently. WestRock Company (NYSE:WRK) was in 32 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 42. Our calculations also showed that WRK isn't among the 30 most popular stocks among hedge funds (click for Q2 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 58 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.
Blair Levinsky of Waratah Capital Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we're going to review the key hedge fund action regarding WestRock Company (NYSE:WRK).
Hedge fund activity in WestRock Company (NYSE:WRK)
At Q2's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the first quarter of 2020. By comparison, 26 hedge funds held shares or bullish call options in WRK a year ago. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in WestRock Company (NYSE:WRK), which was worth $90.1 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $76.4 million worth of shares. Lakewood Capital Management, Arrowstreet Capital, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Atlantic Investment Management allocated the biggest weight to WestRock Company (NYSE:WRK), around 16.2% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, dishing out 4.24 percent of its 13F equity portfolio to WRK.
As aggregate interest increased, specific money managers have jumped into WestRock Company (NYSE:WRK) headfirst. Millennium Management, managed by Israel Englander, initiated the biggest position in WestRock Company (NYSE:WRK). Millennium Management had $38.9 million invested in the company at the end of the quarter. Brad Dunkley and Blair Levinsky's Waratah Capital Advisors also made a $21.5 million investment in the stock during the quarter. The following funds were also among the new WRK investors: Clint Carlson's Carlson Capital, Mark G. Schoeppner's Quaker Capital Investments, and Andrew Byington's Appian Way Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as WestRock Company (NYSE:WRK) but similarly valued. These stocks are BorgWarner Inc. (NYSE:BWA), Vail Resorts, Inc. (NYSE:MTN), Hill-Rom Holdings, Inc. (NYSE:HRC), Vornado Realty Trust (NYSE:VNO), Reynolds Consumer Products Inc. (NASDAQ:REYN), Exelixis, Inc. (NASDAQ:EXEL), and Americold Realty Trust (NYSE:COLD). This group of stocks' market valuations are closest to WRK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BWA,35,802792,5 MTN,37,753210,0 HRC,30,944643,0 VNO,17,126380,-8 REYN,17,319911,0 EXEL,39,1170545,9 COLD,29,290324,4 Average,29.1,629686,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $462 million in WRK's case. Exelixis, Inc. (NASDAQ:EXEL) is the most popular stock in this table. On the other hand Vornado Realty Trust (NYSE:VNO) is the least popular one with only 17 bullish hedge fund positions. WestRock Company (NYSE:WRK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WRK is 66.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on WRK as the stock returned 22.3% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.