Billionaire hedge fund managers such as David Abrams, Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
Wipro Limited (NYSE:WIT) was in 11 hedge funds' portfolios at the end of March. WIT shareholders have witnessed an increase in enthusiasm from smart money of late. There were 10 hedge funds in our database with WIT holdings at the end of the previous quarter. Our calculations also showed that WIT isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a peek at the fresh hedge fund action surrounding Wipro Limited (NYSE:WIT).
What does smart money think about Wipro Limited (NYSE:WIT)?
At Q1's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 7 hedge funds with a bullish position in WIT a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Cliff Asness's AQR Capital Management has the most valuable position in Wipro Limited (NYSE:WIT), worth close to $31 million, amounting to less than 0.1%% of its total 13F portfolio. The second most bullish fund manager is Simon Sadler of Segantii Capital, with a $30.4 million position; 3.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish comprise Ken Fisher's Fisher Asset Management, Ben Levine, Andrew Manuel and Stefan Renold's LMR Partners and Ernest Chow and Jonathan Howe's Sensato Capital Management.
As one would reasonably expect, key hedge funds have been driving this bullishness. Weld Capital Management, managed by Minhua Zhang, initiated the most valuable position in Wipro Limited (NYSE:WIT). Weld Capital Management had $0.1 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also initiated a $0.1 million position during the quarter. The only other fund with a brand new WIT position is John Overdeck and David Siegel's Two Sigma Advisors.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Wipro Limited (NYSE:WIT) but similarly valued. These stocks are Arista Networks Inc (NYSE:ANET), T. Rowe Price Group, Inc. (NASDAQ:TROW), PACCAR Inc (NASDAQ:PCAR), and Waste Connections, Inc. (NYSE:WCN). All of these stocks' market caps are closest to WIT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ANET,28,714547,5 TROW,26,519659,4 PCAR,23,94730,4 WCN,26,545837,-2 Average,25.75,468693,2.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $469 million. That figure was $107 million in WIT's case. Arista Networks Inc (NYSE:ANET) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Wipro Limited (NYSE:WIT) is even less popular than PCAR. Hedge funds clearly dropped the ball on WIT as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on WIT as the stock returned 10.1% during the same period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.