Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Wintrust Financial Corporation (NASDAQ:WTFC) to find out whether there were any major changes in hedge funds' views.
Hedge fund interest in Wintrust Financial Corporation (NASDAQ:WTFC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that WTFC isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Innovative Industrial Properties, Inc. (NYSE:IIPR), Antero Midstream Corp (NYSE:AM), and Armstrong World Industries, Inc. (NYSE:AWI) to gather more data points.
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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.
Donald Sussman of Paloma Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's take a peek at the recent hedge fund action regarding Wintrust Financial Corporation (NASDAQ:WTFC).
Do Hedge Funds Think WTFC Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in WTFC a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Wintrust Financial Corporation (NASDAQ:WTFC), which was worth $51.1 million at the end of the fourth quarter. On the second spot was Fisher Asset Management which amassed $46.3 million worth of shares. Millennium Management, D E Shaw, and AQR 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 0 allocated the biggest weight to Wintrust Financial Corporation (NASDAQ:WTFC), around 0.86% of its 13F portfolio. 0 is also relatively very bullish on the stock, earmarking 0.77 percent of its 13F equity portfolio to WTFC.
Because Wintrust Financial Corporation (NASDAQ:WTFC) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds who were dropping their entire stakes heading into Q2. Interestingly, Daniel Johnson's Gillson Capital cut the largest position of the 750 funds monitored by Insider Monkey, totaling close to $9.6 million in stock, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors was right behind this move, as the fund dropped about $5.2 million worth. These moves are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Wintrust Financial Corporation (NASDAQ:WTFC) but similarly valued. We will take a look at Innovative Industrial Properties, Inc. (NYSE:IIPR), Antero Midstream Corp (NYSE:AM), Armstrong World Industries, Inc. (NYSE:AWI), Healthcare Realty Trust Inc (NYSE:HR), Olink Holding AB (publ) (NASDAQ:OLK), Seaboard Corporation (NYSE:SEB), and Alarm.com Holdings Inc (NASDAQ:ALRM). This group of stocks' market valuations are similar to WTFC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IIPR,13,192649,-10 AM,17,123037,-2 AWI,25,511972,-6 HR,20,172535,-3 OLK,20,174006,20 SEB,14,125291,1 ALRM,20,315314,0 Average,18.4,230686,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $231 million. That figure was $177 million in WTFC's case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Innovative Industrial Properties, Inc. (NYSE:IIPR) is the least popular one with only 13 bullish hedge fund positions. Wintrust Financial Corporation (NASDAQ:WTFC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WTFC is 51.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately WTFC wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WTFC were disappointed as the stock returned -4.2% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.