World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
The Western Union Company (NYSE:WU) investors should pay attention to an increase in activity from the world's largest hedge funds of late. Our calculations also showed that WU isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to 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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the recent hedge fund action regarding The Western Union Company (NYSE:WU).
How are hedge funds trading The Western Union Company (NYSE:WU)?
Heading into the third quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in WU a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in The Western Union Company (NYSE:WU), which was worth $89.2 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $45.5 million worth of shares. Moreover, Winton Capital Management, Polaris Capital Management, and Ariel Investments were also bullish on The Western Union Company (NYSE:WU), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names have been driving this bullishness. Millennium Management, managed by Israel Englander, assembled the biggest position in The Western Union Company (NYSE:WU). Millennium Management had $20.4 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $4.5 million investment in the stock during the quarter. The other funds with brand new WU positions are Perella Weinberg Partners, Dmitry Balyasny's Balyasny Asset Management, and Matthew Tewksbury's Stevens Capital Management.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as The Western Union Company (NYSE:WU) but similarly valued. We will take a look at National Retail Properties, Inc. (NYSE:NNN), OGE Energy Corp. (NYSE:OGE), Westlake Chemical Corporation (NYSE:WLK), and SEI Investments Company (NASDAQ:SEIC). This group of stocks' market valuations resemble WU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NNN,16,217203,4 OGE,13,135934,-4 WLK,23,313524,-3 SEIC,22,396971,-2 Average,18.5,265908,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $266 million. That figure was $384 million in WU's case. Westlake Chemical Corporation (NYSE:WLK) is the most popular stock in this table. On the other hand OGE Energy Corp. (NYSE:OGE) is the least popular one with only 13 bullish hedge fund positions. The Western Union Company (NYSE:WU) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on WU as the stock returned 17.5% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.