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Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Washington Federal Inc. (NASDAQ:WAFD).
Washington Federal Inc. (NASDAQ:WAFD) was in 19 hedge funds' portfolios at the end of the fourth quarter of 2019. WAFD shareholders have witnessed an increase in hedge fund interest in recent months. There were 17 hedge funds in our database with WAFD positions at the end of the previous quarter. Our calculations also showed that WAFD 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 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 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 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.
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Ray Dalio of Bridgewater Associates[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to go over the recent hedge fund action surrounding Washington Federal Inc. (NASDAQ:WAFD).
How have hedgies been trading Washington Federal Inc. (NASDAQ:WAFD)?
Heading into the first quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WAFD over the last 18 quarters. 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, Arrowstreet Capital held the most valuable stake in Washington Federal Inc. (NASDAQ:WAFD), which was worth $37.4 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $18.5 million worth of shares. Renaissance Technologies, GLG Partners, and Winton Capital 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 Sciencast Management allocated the biggest weight to Washington Federal Inc. (NASDAQ:WAFD), around 0.17% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, earmarking 0.09 percent of its 13F equity portfolio to WAFD.
Consequently, specific money managers have jumped into Washington Federal Inc. (NASDAQ:WAFD) headfirst. Winton Capital Management, managed by David Harding, initiated the most valuable position in Washington Federal Inc. (NASDAQ:WAFD). Winton Capital Management had $4.4 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe's Voleon Capital also initiated a $1.1 million position during the quarter. The other funds with brand new WAFD positions are Paul Tudor Jones's Tudor Investment Corp, Ray Dalio's Bridgewater Associates, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Washington Federal Inc. (NASDAQ:WAFD) but similarly valued. We will take a look at BlackLine, Inc. (NASDAQ:BL), Crocs, Inc. (NASDAQ:CROX), Retail Properties of America Inc (NYSE:RPAI), and Texas Capital Bancshares Inc (NASDAQ:TCBI). This group of stocks' market caps resemble WAFD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BL,17,184667,0 CROX,36,691240,6 RPAI,21,266145,-4 TCBI,26,251196,4 Average,25,348312,1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $95 million in WAFD's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand BlackLine, Inc. (NASDAQ:BL) is the least popular one with only 17 bullish hedge fund positions. Washington Federal Inc. (NASDAQ:WAFD) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 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 beat the market by 5.5 percentage points. Unfortunately WAFD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WAFD investors were disappointed as the stock returned -36.4% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.