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Washington Federal Inc. (WAFD): Are Hedge Funds Right About This Stock?

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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 900 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 Washington Federal Inc. (NASDAQ:WAFD).

Washington Federal Inc. (NASDAQ:WAFD) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 19. WAFD investors should be aware of an increase in support from the world's most elite money managers recently. There were 14 hedge funds in our database with WAFD holdings at the end of December. Our calculations also showed that WAFD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 S&P 500 ETFs by 115 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.

Matthew Hulsizer PEAK6 Capital
Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's review the fresh hedge fund action surrounding Washington Federal Inc. (NASDAQ:WAFD).

Do Hedge Funds Think WAFD Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the fourth quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in WAFD a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Is WAFD A Good Stock To Buy?
Is WAFD A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of Washington Federal Inc. (NASDAQ:WAFD), with a stake worth $55.2 million reported as of the end of March. Trailing Millennium Management was D E Shaw, which amassed a stake valued at $21.5 million. Arrowstreet Capital, AQR Capital Management, and Renaissance Technologies 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 EJF Capital allocated the biggest weight to Washington Federal Inc. (NASDAQ:WAFD), around 0.13% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, setting aside 0.08 percent of its 13F equity portfolio to WAFD.

Now, key money managers were leading the bulls' herd. EJF Capital, managed by Emanuel J. Friedman, created the largest position in Washington Federal Inc. (NASDAQ:WAFD). EJF Capital had $1.8 million invested in the company at the end of the quarter. Mika Toikka's AlphaCrest Capital Management also initiated a $1.1 million position during the quarter. The other funds with new positions in the stock are Donald Sussman's Paloma Partners, Michael Gelband's ExodusPoint Capital, and Matthew Hulsizer's PEAK6 Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Washington Federal Inc. (NASDAQ:WAFD) but similarly valued. We will take a look at Organogenesis Holdings Inc. (NASDAQ:ORGO), Rubius Therapeutics, Inc. (NASDAQ:RUBY), Outset Medical, Inc. (NASDAQ:OM), Patria Investments Limited (NASDAQ:PAX), Renasant Corporation (NASDAQ:RNST), Myriad Genetics, Inc. (NASDAQ:MYGN), and O-I Glass, Inc. (NYSE:OI). All of these stocks' market caps are closest to WAFD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ORGO,12,119015,2 RUBY,11,29025,2 OM,17,611460,-7 PAX,19,192923,19 RNST,7,6587,0 MYGN,16,412141,0 OI,23,321783,-2 Average,15,241848,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $242 million. That figure was $123 million in WAFD's case. O-I Glass, Inc. (NYSE:OI) is the most popular stock in this table. On the other hand Renasant Corporation (NASDAQ:RNST) is the least popular one with only 7 bullish hedge fund positions. Washington Federal Inc. (NASDAQ:WAFD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAFD is 71.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately WAFD wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WAFD were disappointed as the stock returned 3.9% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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