Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018 as investors first worried over the possible ramifications of rising interest rates and the escalation of the trade war with China. The hedge funds and institutional investors we track typically invest more in smaller-cap stocks than an average investor (i.e. only about 60% S&P 500 constituents were among the 500 most popular stocks among hedge funds), and we have seen data that shows those funds paring back their overall exposure. Those funds cutting positions in small-caps is one reason why volatility has increased. In the following paragraphs, we take a closer look at what hedge funds and prominent investors think of Western Alliance Bancorporation (NYSE:WAL) and see how the stock is affected by the recent hedge fund activity.
Western Alliance Bancorporation (NYSE:WAL) was in 27 hedge funds' portfolios at the end of the second quarter of 2019. WAL shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 28 hedge funds in our database with WAL positions at the end of the previous quarter. Our calculations also showed that WAL isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's check out the latest hedge fund action surrounding Western Alliance Bancorporation (NYSE:WAL).
What have hedge funds been doing with Western Alliance Bancorporation (NYSE:WAL)?
Heading into the third quarter of 2019, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in WAL a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in Western Alliance Bancorporation (NYSE:WAL). Citadel Investment Group has a $63 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $46.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions comprise John Overdeck and David Siegel's Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital.
Judging by the fact that Western Alliance Bancorporation (NYSE:WAL) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there exists a select few funds that decided to sell off their entire stakes by the end of the second quarter. Intriguingly, Daniel Johnson's Gillson Capital sold off the largest position of the "upper crust" of funds tracked by Insider Monkey, valued at an estimated $5.3 million in stock, and John Brennan's Sirios Capital Management was right behind this move, as the fund cut about $3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 1 funds by the end of the second quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Western Alliance Bancorporation (NYSE:WAL) but similarly valued. We will take a look at MAXIMUS, Inc. (NYSE:MMS), First Horizon National Corporation (NYSE:FHN), OneMain Holdings Inc (NYSE:OMF), and Empire State Realty Trust Inc (NYSE:ESRT). This group of stocks' market valuations match WAL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MMS,22,218927,2 FHN,23,210330,7 OMF,27,359958,-4 ESRT,12,142029,-2 Average,21,232811,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $295 million in WAL's case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Empire State Realty Trust Inc (NYSE:ESRT) is the least popular one with only 12 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 calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on WAL, though not to the same extent, as the stock returned 3.7% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.