We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like WABCO Holdings Inc. (NYSE:WBC).
Is WABCO Holdings Inc. (NYSE:WBC) a buy here? The best stock pickers are becoming less hopeful. The number of bullish hedge fund bets were cut by 4 recently. Our calculations also showed that WBC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). WBC was in 29 hedge funds' portfolios at the end of September. There were 33 hedge funds in our database with WBC positions at the end of the previous quarter. 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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_255014" align="aligncenter" width="450"] Clint Carlson of Carlson Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action encompassing WABCO Holdings Inc. (NYSE:WBC).
Hedge fund activity in WABCO Holdings Inc. (NYSE:WBC)
At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WBC over the last 17 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in WABCO Holdings Inc. (NYSE:WBC) was held by Magnetar Capital, which reported holding $197.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $178.2 million position. Other investors bullish on the company included Carlson Capital, Alpine Associates, and Millennium Management. In terms of the portfolio weights assigned to each position White Square Capital allocated the biggest weight to WABCO Holdings Inc. (NYSE:WBC), around 20.91% of its portfolio. Broad Bay Capital is also relatively very bullish on the stock, dishing out 7.04 percent of its 13F equity portfolio to WBC.
Judging by the fact that WABCO Holdings Inc. (NYSE:WBC) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their positions entirely by the end of the third quarter. Interestingly, James Dinan's York Capital Management dumped the biggest stake of the "upper crust" of funds watched by Insider Monkey, comprising about $59 million in stock, and Nick Niell's Arrowgrass Capital Partners was right behind this move, as the fund dropped about $42.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 4 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks similar to WABCO Holdings Inc. (NYSE:WBC). We will take a look at Starwood Property Trust, Inc. (NYSE:STWD), Algonquin Power & Utilities Corp. (NYSE:AQN), Bruker Corporation (NASDAQ:BRKR), and MongoDB, Inc. (NASDAQ:MDB). This group of stocks' market valuations match WBC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STWD,18,158291,4 AQN,15,211065,6 BRKR,21,272235,-6 MDB,29,526751,-5 Average,20.75,292086,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $1218 million in WBC's case. MongoDB, Inc. (NASDAQ:MDB) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. WABCO Holdings Inc. (NYSE:WBC) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WBC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WBC were disappointed as the stock returned 0.7% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.