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Is WDR A Good Stock To Buy Now According To Hedge Funds?

Abigail Fisher
·6 min read

In this article we will analyze whether Waddell & Reed Financial, Inc. (NYSE:WDR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is WDR a good stock to buy now? Waddell & Reed Financial, Inc. (NYSE:WDR) shareholders have witnessed a decrease in enthusiasm from smart money in recent months. Waddell & Reed Financial, Inc. (NYSE:WDR) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 25. There were 25 hedge funds in our database with WDR positions at the end of the second quarter. Our calculations also showed that WDR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most traders, hedge funds are assumed to be underperforming, outdated investment tools of yesteryear. While there are more than 8000 funds with their doors open today, We look at the top tier of this club, about 850 funds. These hedge fund managers have their hands on the majority of all hedge funds' total asset base, and by following their top picks, Insider Monkey has brought to light many investment strategies that have historically defeated the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Thomas Claugus of GMT Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind let's view the recent hedge fund action regarding Waddell & Reed Financial, Inc. (NYSE:WDR).

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

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. On the other hand, there were a total of 20 hedge funds with a bullish position in WDR a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, GAMCO Investors was the largest shareholder of Waddell & Reed Financial, Inc. (NYSE:WDR), with a stake worth $19.9 million reported as of the end of September. Trailing GAMCO Investors was Fisher Asset Management, which amassed a stake valued at $19.5 million. Arrowstreet Capital, GMT Capital, and Royce & Associates 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 GMT Capital allocated the biggest weight to Waddell & Reed Financial, Inc. (NYSE:WDR), around 0.98% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, designating 0.77 percent of its 13F equity portfolio to WDR.

Since Waddell & Reed Financial, Inc. (NYSE:WDR) has experienced declining sentiment from hedge fund managers, it's safe to say that there exists a select few funds who sold off their full holdings by the end of the third quarter. At the top of the heap, Paul Marshall and Ian Wace's Marshall Wace LLP said goodbye to the biggest stake of the "upper crust" of funds tracked by Insider Monkey, worth about $4.4 million in stock. Renaissance Technologies, also dropped its stock, about $1.7 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to Waddell & Reed Financial, Inc. (NYSE:WDR). We will take a look at Matador Resources Co (NYSE:MTDR), New York Mortgage Trust, Inc. (NASDAQ:NYMT), Atara Biotherapeutics Inc (NASDAQ:ATRA), Constellation Pharmaceuticals, Inc. (NASDAQ:CNST), The Greenbrier Companies Inc (NYSE:GBX), Oak Street Health, Inc. (NYSE:OSH), and Encore Wire Corporation (NASDAQ:WIRE). All of these stocks' market caps match WDR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MTDR,16,69003,-7 NYMT,19,42322,4 ATRA,23,458410,1 CNST,26,303807,-9 GBX,14,39209,5 OSH,22,401333,22 WIRE,22,49809,2 Average,20.3,194842,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.3 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $116 million in WDR's case. Constellation Pharmaceuticals, Inc. (NASDAQ:CNST) is the most popular stock in this table. On the other hand The Greenbrier Companies Inc (NYSE:GBX) is the least popular one with only 14 bullish hedge fund positions. Waddell & Reed Financial, Inc. (NYSE:WDR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WDR is 55.4. 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. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on WDR as the stock returned 74.9% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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