In this article we will take a look at whether hedge funds think WESCO International, Inc. (NYSE:WCC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
WESCO International, Inc. (NYSE:WCC) was in 32 hedge funds' portfolios at the end of March. WCC investors should be aware of an increase in enthusiasm from smart money in recent months. There were 26 hedge funds in our database with WCC holdings at the end of the previous quarter. Our calculations also showed that WCC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 51 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_758429" align="aligncenter" width="400"] Ric Dillon of Diamond Hill Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020's unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to take a look at the latest hedge fund action surrounding WESCO International, Inc. (NYSE:WCC).
What have hedge funds been doing with WESCO International, Inc. (NYSE:WCC)?
At Q1's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WCC over the last 18 quarters. With hedgies' sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in WESCO International, Inc. (NYSE:WCC) was held by Diamond Hill Capital, which reported holding $48.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $32 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Polaris Capital Management. In terms of the portfolio weights assigned to each position Venator Capital Management allocated the biggest weight to WESCO International, Inc. (NYSE:WCC), around 1.17% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, designating 1.12 percent of its 13F equity portfolio to WCC.
With a general bullishness amongst the heavyweights, key money managers have jumped into WESCO International, Inc. (NYSE:WCC) headfirst. Alpine Associates, managed by Robert Emil Zoellner, established the most valuable position in WESCO International, Inc. (NYSE:WCC). Alpine Associates had $11.8 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $10.1 million investment in the stock during the quarter. The following funds were also among the new WCC investors: John Overdeck and David Siegel's Two Sigma Advisors, Paul Marshall and Ian Wace's Marshall Wace LLP, and Brandon Osten's Venator Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. We will take a look at US Ecology Inc. (NASDAQ:ECOL), Sapiens International Corporation N.V. (NASDAQ:SPNS), Hecla Mining Company (NYSE:HL), and Sirius International Insurance Group, Ltd. (NASDAQ:SG). All of these stocks' market caps resemble WCC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ECOL,22,40929,8 SPNS,10,32545,0 HL,15,55117,1 SG,2,1669,-2 Average,12.25,32565,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $221 million in WCC's case. US Ecology Inc. (NASDAQ:ECOL) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks WESCO International, Inc. (NYSE:WCC) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on WCC as the stock returned 45.7% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.