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Do Hedge Funds Love WD-40 Company (WDFC)?

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Reymerlyn Martin
·6 min read
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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about WD-40 Company (NASDAQ:WDFC) in this article.

WD-40 Company (NASDAQ:WDFC) was in 17 hedge funds' portfolios at the end of December. WDFC has experienced a decrease in hedge fund sentiment of late. There were 19 hedge funds in our database with WDFC holdings at the end of the previous quarter. Our calculations also showed that WDFC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_375529" align="aligncenter" width="400"]

Mario Gabelli of GAMCO Investors[/caption]

Keeping this in mind let's take a gander at the latest hedge fund action encompassing WD-40 Company (NASDAQ:WDFC).

What have hedge funds been doing with WD-40 Company (NASDAQ:WDFC)?

At Q4's end, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WDFC over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, VGI Partners, managed by Robert M. P. Luciano, holds the biggest position in WD-40 Company (NASDAQ:WDFC). VGI Partners has a $70.7 million position in the stock, comprising 5.6% of its 13F portfolio. The second most bullish fund manager is Renaissance Technologies, founded by Jim Simons, which holds a $70.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions encompass Noam Gottesman's GLG Partners, David Harding's Winton Capital Management and Mario Gabelli's GAMCO Investors. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to WD-40 Company (NASDAQ:WDFC), around 5.58% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, dishing out 2.15 percent of its 13F equity portfolio to WDFC.

Since WD-40 Company (NASDAQ:WDFC) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there exists a select few money managers that elected to cut their entire stakes in the third quarter. Intriguingly, Mika Toikka's AlphaCrest Capital Management dumped the biggest stake of the "upper crust" of funds monitored by Insider Monkey, valued at an estimated $0.6 million in stock, and Mike Vranos's Ellington was right behind this move, as the fund dropped about $0.5 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds in the third quarter.

Let's also examine hedge fund activity in other stocks similar to WD-40 Company (NASDAQ:WDFC). We will take a look at Franklin Electric Co. (NASDAQ:FELE), PROS Holdings, Inc. (NYSE:PRO), Advanced Drainage Systems, Inc. (NYSE:WMS), and Fluor Corporation (NYSE:FLR). All of these stocks' market caps resemble WDFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FELE,14,266404,2 PRO,20,272799,-7 WMS,25,486613,-2 FLR,24,274625,4 Average,20.75,325110,-0.75 [/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 $325 million. That figure was $222 million in WDFC's case. Advanced Drainage Systems, Inc. (NYSE:WMS) is the most popular stock in this table. On the other hand Franklin Electric Co. (NASDAQ:FELE) is the least popular one with only 14 bullish hedge fund positions. WD-40 Company (NASDAQ:WDFC) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on WDFC as the stock returned -5.1% during the same time period and outperformed the market by an even larger margin.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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.

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