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Is Western New England Bancorp, Inc. (WNEB) Going to Burn These Hedge Funds?

Debasis Saha

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Western New England Bancorp, Inc. (NASDAQ:WNEB) a healthy stock for your portfolio? Money managers are becoming hopeful. The number of bullish hedge fund positions went up by 2 lately. Our calculations also showed that WNEB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]

RENAISSANCE TECHNOLOGIES
RENAISSANCE TECHNOLOGIES

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. With all of this in mind we're going to take a glance at the fresh hedge fund action surrounding Western New England Bancorp, Inc. (NASDAQ:WNEB).

What does smart money think about Western New England Bancorp, Inc. (NASDAQ:WNEB)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 67% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WNEB over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WNEB A Good Stock To Buy?
Is WNEB A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the number one position in Western New England Bancorp, Inc. (NASDAQ:WNEB). Renaissance Technologies has a $16.6 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Chuck Royce of Royce & Associates, with a $4.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions consist of John D. Gillespie's Prospector Partners, David Harding's Winton Capital Management and Paul Marshall and Ian Wace's Marshall Wace. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Western New England Bancorp, Inc. (NASDAQ:WNEB), around 0.27% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.04 percent of its 13F equity portfolio to WNEB.

As industrywide interest jumped, key money managers were leading the bulls' herd. Winton Capital Management, managed by David Harding, established the most outsized position in Western New England Bancorp, Inc. (NASDAQ:WNEB). Winton Capital Management had $0.5 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also initiated a $0 million position during the quarter.

Let's now review hedge fund activity in other stocks similar to Western New England Bancorp, Inc. (NASDAQ:WNEB). These stocks are Alico, Inc. (NASDAQ:ALCO), Albireo Pharma, Inc. (NASDAQ:ALBO), Sify Technologies Limited (NASDAQ:SIFY), and Ocwen Financial Corporation (NYSE:OCN). This group of stocks' market values resemble WNEB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALCO,6,18892,1 ALBO,11,54443,-1 SIFY,1,746,-1 OCN,10,31580,0 Average,7,26415,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $23 million in WNEB's case. Albireo Pharma, Inc. (NASDAQ:ALBO) is the most popular stock in this table. On the other hand Sify Technologies Limited (NASDAQ:SIFY) is the least popular one with only 1 bullish hedge fund positions. Western New England Bancorp, Inc. (NASDAQ:WNEB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WNEB wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WNEB investors were disappointed as the stock returned 3.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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