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These Hedge Funds Sold Waters Corporation (WAT) A Little Bit Too Early

Nina Todic

World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients' money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It's not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It's also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.

Waters Corporation (NYSE:WAT) was in 26 hedge funds' portfolios at the end of June. WAT has experienced a decrease in support from the world's most elite money managers lately. There were 30 hedge funds in our database with WAT positions at the end of the previous quarter. Our calculations also showed that WAT isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Noam Gottesman GLG Partners

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 analyze the new hedge fund action surrounding Waters Corporation (NYSE:WAT).

How have hedgies been trading Waters Corporation (NYSE:WAT)?

Heading into the third quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WAT over the last 16 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with WAT Positions

According to Insider Monkey's hedge fund database, Renaissance Technologies holds the number one position in Waters Corporation (NYSE:WAT). Renaissance Technologies has a $102.9 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is GLG Partners, led by Noam Gottesman, holding a $85.3 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish contain Ian Simm's Impax Asset Management, David Blood and Al Gore's Generation Investment Management and Cliff Asness's AQR Capital Management.

Because Waters Corporation (NYSE:WAT) has experienced falling interest from the smart money, it's easy to see that there was a specific group of hedge funds that decided to sell off their entire stakes last quarter. Interestingly, Ernest Chow and Jonathan Howe's Sensato Capital Management sold off the largest investment of all the hedgies monitored by Insider Monkey, worth close to $8 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dropped its stock, about $3.7 million worth. These moves are important to note, as total hedge fund interest dropped by 4 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Waters Corporation (NYSE:WAT) but similarly valued. We will take a look at Regions Financial Corporation (NYSE:RF), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Xylem Inc (NYSE:XYL), and DXC Technology Company (NYSE:DXC). This group of stocks' market caps resemble WAT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RF,32,700009,-9 BMRN,45,2076416,4 XYL,19,674762,6 DXC,41,2116402,-5 Average,34.25,1391897,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 34.25 hedge funds with bullish positions and the average amount invested in these stocks was $1392 million. That figure was $603 million in WAT's case. BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) is the most popular stock in this table. On the other hand Xylem Inc (NYSE:XYL) is the least popular one with only 19 bullish hedge fund positions. Waters Corporation (NYSE:WAT) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks (see the video below) among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on WAT, though not to the same extent, as the stock returned 3.7% during the third quarter and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Disclosure: None. This article was originally published at Insider Monkey.

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