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 The Western Union Company (NYSE:WU) and determine whether hedge funds skillfully traded this stock.
Hedge fund interest in The Western Union Company (NYSE:WU) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that WU 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). At the end of this article we will also compare WU to other stocks including Camden Property Trust (NYSE:CPT), ICON Public Limited Company (NASDAQ:ICLR), and Fortune Brands Home & Security Inc (NYSE:FBHS) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jacob Rothschild of RIT Capital
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. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. 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 let's take a peek at the recent hedge fund action regarding The Western Union Company (NYSE:WU).
How have hedgies been trading The Western Union Company (NYSE:WU)?
Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WU over the last 20 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Citadel Investment Group was the largest shareholder of The Western Union Company (NYSE:WU), with a stake worth $192.1 million reported as of the end of September. Trailing Citadel Investment Group was International Value Advisers, which amassed a stake valued at $102.9 million. D E Shaw, Arrowstreet Capital, and Renaissance Technologies 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 International Value Advisers allocated the biggest weight to The Western Union Company (NYSE:WU), around 7.63% of its 13F portfolio. RIT Capital Partners is also relatively very bullish on the stock, dishing out 2.25 percent of its 13F equity portfolio to WU.
Judging by the fact that The Western Union Company (NYSE:WU) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedgies who sold off their full holdings last quarter. Interestingly, Bernard Horn's Polaris Capital Management said goodbye to the largest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $32.2 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund dropped about $10.4 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks similar to The Western Union Company (NYSE:WU). We will take a look at Camden Property Trust (NYSE:CPT), ICON Public Limited Company (NASDAQ:ICLR), Fortune Brands Home & Security Inc (NYSE:FBHS), NIO Limited (NYSE:NIO), Dr. Reddy's Laboratories Limited (NYSE:RDY), 10x Genomics, Inc. (NASDAQ:TXG), and Crown Holdings, Inc. (NYSE:CCK). This group of stocks' market values are closest to WU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CPT,26,336306,-6 ICLR,24,590357,3 FBHS,34,395135,3 NIO,30,567819,14 RDY,12,173335,1 TXG,19,313211,-1 CCK,51,1239713,-5 Average,28,516554,1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $517 million. That figure was $623 million in WU's case. Crown Holdings, Inc. (NYSE:CCK) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 12 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 overall hedge fund sentiment score for WU is 63.2. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately WU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WU were disappointed as the stock returned 9.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.