The market has been volatile in the last few months as the Federal Reserve continued its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q2 and the beginning of Q3. In this article, we analyze what the smart money thinks of Wingstop Inc (NASDAQ:WING) and find out how it is affected by hedge funds' moves.
Hedge fund interest in Wingstop Inc (NASDAQ:WING) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Colliers International Group Inc (NASDAQ:CIGI), Immunomedics, Inc. (NASDAQ:IMMU), and Cedar Fair, L.P. (NYSE:FUN) to gather more data points. Our calculations also showed that WING isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's take a look at the key hedge fund action surrounding Wingstop Inc (NASDAQ:WING).
What have hedge funds been doing with Wingstop Inc (NASDAQ:WING)?
At Q2's end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 18 hedge funds held shares or bullish call options in WING a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Wingstop Inc (NASDAQ:WING) was held by Renaissance Technologies, which reported holding $111.7 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $36.1 million position. Other investors bullish on the company included Citadel Investment Group, Balyasny Asset Management, and Driehaus Capital.
Since Wingstop Inc (NASDAQ:WING) has experienced falling interest from hedge fund managers, it's safe to say that there was a specific group of hedge funds who sold off their positions entirely by the end of the second quarter. Interestingly, Li Ran's Half Sky Capital dumped the biggest stake of the 750 funds followed by Insider Monkey, worth close to $19.2 million in stock. Andrew Feldstein and Stephen Siderow's fund, Blue Mountain Capital, also dumped its stock, about $0.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks similar to Wingstop Inc (NASDAQ:WING). These stocks are Colliers International Group Inc (NASDAQ:CIGI), Immunomedics, Inc. (NASDAQ:IMMU), Cedar Fair, L.P. (NYSE:FUN), and Quaker Chemical Corp (NYSE:KWR). This group of stocks' market caps are closest to WING's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CIGI,10,714758,-4 IMMU,21,618087,-3 FUN,8,46860,0 KWR,13,150464,2 Average,13,382542,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $325 million in WING's case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand Cedar Fair, L.P. (NYSE:FUN) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Wingstop Inc (NASDAQ:WING) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WING wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WING were disappointed as the stock returned -7.8% during the third quarter 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 many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.