We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Wintrust Financial Corporation (NASDAQ:WTFC).
Wintrust Financial Corporation (NASDAQ:WTFC) was in 21 hedge funds' portfolios at the end of the fourth quarter of 2019. WTFC investors should be aware of an increase in hedge fund sentiment of late. There were 20 hedge funds in our database with WTFC holdings at the end of the previous quarter. Our calculations also showed that WTFC isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 41 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_746830" align="aligncenter" width="400"] Matthew Hulsizer of PEAK6 Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a look at the recent hedge fund action encompassing Wintrust Financial Corporation (NASDAQ:WTFC).
How are hedge funds trading Wintrust Financial Corporation (NASDAQ:WTFC)?
Heading into the first quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WTFC over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Wintrust Financial Corporation (NASDAQ:WTFC). Citadel Investment Group has a $63.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $63.1 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that are bullish encompass D. E. Shaw's D E Shaw, Ken Fisher's Fisher Asset Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Wintrust Financial Corporation (NASDAQ:WTFC), around 1.02% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 0.44 percent of its 13F equity portfolio to WTFC.
As industrywide interest jumped, specific money managers have jumped into Wintrust Financial Corporation (NASDAQ:WTFC) headfirst. Strycker View Capital, managed by Usman Waheed, established the most valuable position in Wintrust Financial Corporation (NASDAQ:WTFC). Strycker View Capital had $0.9 million invested in the company at the end of the quarter. Peter Muller's PDT Partners also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital and Benjamin A. Smith's Laurion Capital Management.
Let's check out hedge fund activity in other stocks similar to Wintrust Financial Corporation (NASDAQ:WTFC). We will take a look at PNM Resources, Inc. (NYSE:PNM), RLI Corp. (NYSE:RLI), Valvoline Inc. (NYSE:VVV), and NuVasive, Inc. (NASDAQ:NUVA). This group of stocks' market caps are similar to WTFC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNM,19,367854,3 RLI,25,229633,9 VVV,27,371950,-2 NUVA,26,312278,3 Average,24.25,320429,3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $320 million. That figure was $275 million in WTFC's case. Valvoline Inc. (NYSE:VVV) is the most popular stock in this table. On the other hand PNM Resources, Inc. (NYSE:PNM) is the least popular one with only 19 bullish hedge fund positions. Wintrust Financial Corporation (NASDAQ:WTFC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately WTFC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WTFC investors were disappointed as the stock returned -55% during the same time period 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.