At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Western Alliance Bancorporation (NYSE:WAL) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Western Alliance Bancorporation (NYSE:WAL) shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. Western Alliance Bancorporation (NYSE:WAL) was in 24 hedge funds' portfolios at the end of June. The all time high for this statistics is 34. There were 27 hedge funds in our database with WAL positions at the end of the first quarter. Our calculations also showed that WAL isn't among the 30 most popular stocks among hedge funds (click for Q2 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 21st century investor’s toolkit there are many gauges investors can use to analyze stocks. A duo of the most innovative gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform their index-focused peers by a healthy margin (see the details here).
Nathaniel August of Mangrove Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to take a peek at the recent hedge fund action surrounding Western Alliance Bancorporation (NYSE:WAL).
What have hedge funds been doing with Western Alliance Bancorporation (NYSE:WAL)?
At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WAL over the last 20 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of Western Alliance Bancorporation (NYSE:WAL), with a stake worth $26.9 million reported as of the end of September. Trailing Citadel Investment Group was Adage Capital Management, which amassed a stake valued at $23.8 million. Holocene Advisors, Carlson Capital, and Arrowstreet Capital 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 JCSD Capital allocated the biggest weight to Western Alliance Bancorporation (NYSE:WAL), around 8.07% of its 13F portfolio. Elizabeth Park Capital Management is also relatively very bullish on the stock, earmarking 3.31 percent of its 13F equity portfolio to WAL.
Seeing as Western Alliance Bancorporation (NYSE:WAL) has witnessed bearish sentiment from the smart money, it's easy to see that there was a specific group of hedge funds who were dropping their full holdings last quarter. Intriguingly, Daniel Johnson's Gillson Capital dropped the biggest investment of all the hedgies followed by Insider Monkey, totaling close to $10.6 million in stock. Paul Magidson, Jonathan Cohen. And Ostrom Enders's fund, Castine Capital Management, also said goodbye to its stock, about $4.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 3 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to Western Alliance Bancorporation (NYSE:WAL). We will take a look at GW Pharmaceuticals plc (NASDAQ:GWPH), National Fuel Gas Company (NYSE:NFG), Hutchison China MediTech Limited (NASDAQ:HCM), Southwest Gas Holdings, Inc. (NYSE:SWX), Houlihan Lokey Inc (NYSE:HLI), Brixmor Property Group Inc (NYSE:BRX), and Acuity Brands, Inc. (NYSE:AYI). This group of stocks' market values match WAL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GWPH,18,350605,-3 NFG,22,174710,4 HCM,7,34538,1 SWX,13,83518,0 HLI,24,146572,9 BRX,24,82889,-4 AYI,38,650114,7 Average,20.9,217564,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.9 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $140 million in WAL's case. Acuity Brands, Inc. (NYSE:AYI) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 7 bullish hedge fund positions. Western Alliance Bancorporation (NYSE:WAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAL is 50.6. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately WAL wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WAL were disappointed as the stock returned -16.7% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.