How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Weyco Group, Inc. (NASDAQ:WEYS).
Weyco Group, Inc. (NASDAQ:WEYS) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of September. At the end of this article we will also compare WEYS to other stocks including Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Telenav Inc (NASDAQ:TNAV), and New Germany Fund, Inc. (The) (NYSE:GF) to get a better sense of its popularity.
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 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_193003" align="aligncenter" width="600"] Chuck Royce of Royce & Associates[/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 check out the new hedge fund action encompassing Weyco Group, Inc. (NASDAQ:WEYS).
How are hedge funds trading Weyco Group, Inc. (NASDAQ:WEYS)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WEYS over the last 17 quarters. With hedge funds' capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Weyco Group, Inc. (NASDAQ:WEYS), which was worth $7.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $2.2 million worth of shares. Marshall Wace was 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 Royce & Associates allocated the biggest weight to Weyco Group, Inc. (NASDAQ:WEYS), around 0.07% of its portfolio. Renaissance Technologies is also relatively very bullish on the stock, earmarking 0.0019 percent of its 13F equity portfolio to WEYS.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Weyco Group, Inc. (NASDAQ:WEYS) but similarly valued. These stocks are Commercial Vehicle Group, Inc. (NASDAQ:CVGI), Telenav Inc (NASDAQ:TNAV), New Germany Fund, Inc. (The) (NYSE:GF), and Kaleido BioSciences, Inc. (NASDAQ:KLDO). This group of stocks' market values match WEYS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVGI,11,46531,-2 TNAV,12,52973,0 GF,1,309,0 KLDO,5,7555,0 Average,7.25,26842,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $9 million in WEYS's case. Telenav Inc (NASDAQ:TNAV) is the most popular stock in this table. On the other hand New Germany Fund, Inc. (The) (NYSE:GF) is the least popular one with only 1 bullish hedge fund positions. Weyco Group, Inc. (NASDAQ:WEYS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately WEYS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WEYS investors were disappointed as the stock returned 2.6% during the fourth quarter (through 11/22) 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.