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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Peltz's recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Washington Trust Bancorp, Inc. (NASDAQ:WASH).
Washington Trust Bancorp, Inc. (NASDAQ:WASH) shareholders have witnessed a decrease in hedge fund interest of late. Washington Trust Bancorp, Inc. (NASDAQ:WASH) was in 11 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. There were 12 hedge funds in our database with WASH holdings at the end of June. Our calculations also showed that WASH 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Martin Whitman of Third Avenue Management
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. Now we're going to take a peek at the fresh hedge fund action regarding Washington Trust Bancorp, Inc. (NASDAQ:WASH).
Do Hedge Funds Think WASH Is A Good Stock To Buy Now?
At Q3's end, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in WASH a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in Washington Trust Bancorp, Inc. (NASDAQ:WASH), which was worth $8.7 million at the end of the third quarter. On the second spot was Third Avenue Management which amassed $5.2 million worth of shares. Citadel Investment Group, Arrowstreet Capital, and Winton Capital Management 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 Third Avenue Management allocated the biggest weight to Washington Trust Bancorp, Inc. (NASDAQ:WASH), around 0.72% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to WASH.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Tudor Investment Corp. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified WASH as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Washington Trust Bancorp, Inc. (NASDAQ:WASH) but similarly valued. These stocks are Scholar Rock Holding Corporation (NASDAQ:SRRK), Vanda Pharmaceuticals Inc. (NASDAQ:VNDA), Hycroft Mining Holding Corporation (NASDAQ:HYMC), Radius Health Inc (NASDAQ:RDUS), Yintech Investment Holdings Limited (NASDAQ:YIN), Mitek Systems, Inc. (NASDAQ:MITK), and Universal Electronics Inc (NASDAQ:UEIC). This group of stocks' market valuations match WASH's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SRRK,4,55800,-1 VNDA,22,170926,3 HYMC,13,353809,6 RDUS,22,124511,1 YIN,3,998,2 MITK,20,88835,1 UEIC,10,18576,-1 Average,13.4,116208,1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $116 million. That figure was $22 million in WASH's case. Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is the most popular stock in this table. On the other hand Yintech Investment Holdings Limited (NASDAQ:YIN) is the least popular one with only 3 bullish hedge fund positions. Washington Trust Bancorp, Inc. (NASDAQ:WASH) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WASH is 52.6. 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. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on WASH as the stock returned 43.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.