There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Webster Financial Corporation (NYSE:WBS).
Is Webster Financial Corporation (NYSE:WBS) a buy right now? The smart money is getting less optimistic. The number of bullish hedge fund positions went down by 1 in recent months. Our calculations also showed that wbs isn't among the 30 most popular stocks among hedge funds. WBS was in 25 hedge funds' portfolios at the end of March. There were 26 hedge funds in our database with WBS holdings at the end of the previous quarter.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let's take a glance at the key hedge fund action regarding Webster Financial Corporation (NYSE:WBS).
How are hedge funds trading Webster Financial Corporation (NYSE:WBS)?
At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WBS over the last 15 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Webster Financial Corporation (NYSE:WBS) was held by Nitorum Capital, which reported holding $66.9 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $57.2 million position. Other investors bullish on the company included Polaris Capital Management, Fisher Asset Management, and Royce & Associates.
Since Webster Financial Corporation (NYSE:WBS) has witnessed a decline in interest from the smart money, logic holds that there were a few hedgies that elected to cut their entire stakes last quarter. It's worth mentioning that Noam Gottesman's GLG Partners said goodbye to the biggest stake of the 700 funds followed by Insider Monkey, totaling about $1.3 million in stock, and David Costen Haley's HBK Investments was right behind this move, as the fund cut about $0.4 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.
Let's also examine hedge fund activity in other stocks similar to Webster Financial Corporation (NYSE:WBS). We will take a look at Cameco Corporation (NYSE:CCJ), Eaton Vance Corp (NYSE:EV), FibroGen Inc (NASDAQ:FGEN), and Portland General Electric Company (NYSE:POR). All of these stocks' market caps match WBS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCJ,24,351465,0 EV,13,115183,-4 FGEN,21,193833,1 POR,19,251671,0 Average,19.25,228038,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $228 million. That figure was $303 million in WBS's case. Cameco Corporation (NYSE:CCJ) is the most popular stock in this table. On the other hand Eaton Vance Corp (NYSE:EV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Webster Financial Corporation (NYSE:WBS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately WBS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WBS were disappointed as the stock returned -8.7% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.