Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
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 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 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.
We're going to go over the new hedge fund action encompassing Welbilt, Inc. (NYSE:WBT).
How are hedge funds trading Welbilt, Inc. (NYSE:WBT)?
At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the fourth quarter of 2018. By comparison, 19 hedge funds held shares or bullish call options in WBT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Welbilt, Inc. (NYSE:WBT) was held by Select Equity Group, which reported holding $181.5 million worth of stock at the end of March. It was followed by Icahn Capital LP with a $165.2 million position. Other investors bullish on the company included Impax Asset Management, Gates Capital Management, and Scopia Capital.
Consequently, some big names have jumped into Welbilt, Inc. (NYSE:WBT) headfirst. Scopia Capital, managed by Matt Sirovich and Jeremy Mindich, assembled the biggest position in Welbilt, Inc. (NYSE:WBT). Scopia Capital had $33.9 million invested in the company at the end of the quarter. Alexander Mitchell's Scopus Asset Management also initiated a $20.4 million position during the quarter. The other funds with new positions in the stock are Joel Greenblatt's Gotham Asset Management, Phill Gross and Robert Atchinson's Adage Capital Management, and Sander Gerber's Hudson Bay Capital Management.
Let's now review hedge fund activity in other stocks similar to Welbilt, Inc. (NYSE:WBT). We will take a look at Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Applied Industrial Technologies, Inc. (NYSE:AIT), Main Street Capital Corporation (NYSE:MAIN), and Urban Edge Properties (NYSE:UE). All of these stocks' market caps match WBT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBA,3,35097,0 AIT,17,109689,-3 MAIN,4,9836,-5 UE,14,97014,2 Average,9.5,62909,-1.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.5 hedge funds with bullish positions and the average amount invested in these stocks was $63 million. That figure was $852 million in WBT's case. Applied Industrial Technologies, Inc. (NYSE:AIT) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Welbilt, Inc. (NYSE:WBT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately WBT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WBT were disappointed as the stock returned -3.5% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.