As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about The Western Union Company (NYSE:WU).
Is The Western Union Company (NYSE:WU) a splendid investment now? The best stock pickers are taking a pessimistic view. The number of long hedge fund bets dropped by 3 recently. Our calculations also showed that WU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the recent hedge fund action regarding The Western Union Company (NYSE:WU).
How are hedge funds trading The Western Union Company (NYSE:WU)?
Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WU over the last 17 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Renaissance Technologies held the most valuable stake in The Western Union Company (NYSE:WU), which was worth $140.7 million at the end of the third quarter. On the second spot was Winton Capital Management which amassed $58.6 million worth of shares. Polaris Capital Management, Two Sigma Advisors, and Ariel Investments were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Polaris Capital Management allocated the biggest weight to The Western Union Company (NYSE:WU), around 2.27% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, designating 1.33 percent of its 13F equity portfolio to WU.
Since The Western Union Company (NYSE:WU) has witnessed falling interest from the entirety of the hedge funds we track, we can see that there lies a certain "tier" of hedgies that slashed their entire stakes in the third quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital cut the biggest stake of the 750 funds watched by Insider Monkey, totaling an estimated $45.5 million in stock. Ray Dalio's fund, Bridgewater Associates, also sold off its stock, about $7.7 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds in the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as The Western Union Company (NYSE:WU) but similarly valued. We will take a look at Autohome Inc (NYSE:ATHM), Chewy, Inc. (NYSE:CHWY), Trimble Inc. (NASDAQ:TRMB), and Devon Energy Corp (NYSE:DVN). This group of stocks' market valuations match WU's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ATHM,10,1157371,-6 CHWY,24,477781,-14 TRMB,25,592535,9 DVN,39,1275716,3 Average,24.5,875851,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $876 million. That figure was $413 million in WU's case. Devon Energy Corp (NYSE:DVN) is the most popular stock in this table. On the other hand Autohome Inc (NYSE:ATHM) is the least popular one with only 10 bullish hedge fund positions. The Western Union Company (NYSE:WU) 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 among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on WU as the stock returned 16% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.