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 Willis Lease Finance Corporation (NASDAQ:WLFC) the right investment to pursue these days? The best stock pickers are taking an optimistic view. The number of bullish hedge fund bets advanced by 1 in recent months. Our calculations also showed that WLFC 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.
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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26073" align="alignnone" width="600"] Jim Simons of Renaissance Technologies[/caption]
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. Keeping this in mind let's take a gander at the recent hedge fund action surrounding Willis Lease Finance Corporation (NASDAQ:WLFC).
What does smart money think about Willis Lease Finance Corporation (NASDAQ:WLFC)?
At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WLFC over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in Willis Lease Finance Corporation (NASDAQ:WLFC), worth close to $25.6 million, amounting to less than 0.1%% of its total 13F portfolio. On Renaissance Technologies's heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $0.8 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism consist of Louis Navellier's Navellier & Associates, Gavin Saitowitz and Cisco J. del Valle's Springbok Capital and . In terms of the portfolio weights assigned to each position Navellier & Associates allocated the biggest weight to Willis Lease Finance Corporation (NASDAQ:WLFC), around 0.04% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, dishing out 0.02 percent of its 13F equity portfolio to WLFC.
Consequently, some big names were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the biggest position in Willis Lease Finance Corporation (NASDAQ:WLFC). Arrowstreet Capital had $0.8 million invested in the company at the end of the quarter.
Let's check out hedge fund activity in other stocks similar to Willis Lease Finance Corporation (NASDAQ:WLFC). These stocks are Altisource Portfolio Solutions S.A. (NASDAQ:ASPS), Cellcom Israel Ltd. (NYSE:CEL), Priority Technology Holdings, Inc. (NASDAQ:PRTH), and Regional Management Corp (NYSE:RM). This group of stocks' market values resemble WLFC's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ASPS,9,50131,0 CEL,2,10880,0 PRTH,3,3524,1 RM,11,79774,0 Average,6.25,36077,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $36 million. That figure was $27 million in WLFC's case. Regional Management Corp (NYSE:RM) is the most popular stock in this table. On the other hand Cellcom Israel Ltd. (NYSE:CEL) is the least popular one with only 2 bullish hedge fund positions. Willis Lease Finance Corporation (NASDAQ:WLFC) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on WLFC, though not to the same extent, as the stock returned 8.3% during the first two months of the fourth quarter and outperformed the market.
Disclosure: None. This article was originally published at Insider Monkey.