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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding WNS (Holdings) Limited (NYSE:WNS).
Is WNS stock a buy? WNS shareholders have witnessed an increase in hedge fund interest of late. WNS (Holdings) Limited (NYSE:WNS) was in 23 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 21. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 21 hedge funds in our database with WNS holdings at the end of September. Our calculations also showed that WNS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind we're going to take a look at the recent hedge fund action regarding WNS (Holdings) Limited (NYSE:WNS).
Do Hedge Funds Think WNS Is A Good Stock To Buy Now?
At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WNS over the last 22 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the number one position in WNS (Holdings) Limited (NYSE:WNS), worth close to $93.9 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Diamond Hill Capital, led by Ric Dillon, holding a $62.2 million position; 0.3% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism contain Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Noam Gottesman's GLG Partners and Ken Fisher's Fisher Asset Management. In terms of the portfolio weights assigned to each position Lunia Capital allocated the biggest weight to WNS (Holdings) Limited (NYSE:WNS), around 3.57% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 3.36 percent of its 13F equity portfolio to WNS.
There weren't any hedge funds initiating brand new positions in the stock during the fourth quarter.
Let's now take a look at hedge fund activity in other stocks similar to WNS (Holdings) Limited (NYSE:WNS). These stocks are FuelCell Energy, Inc. (NASDAQ:FCEL), MicroStrategy Incorporated (NASDAQ:MSTR), Jumia Technologies AG (NYSE:JMIA), Sabra Health Care REIT Inc (NASDAQ:SBRA), LendingTree, Inc (NASDAQ:TREE), CarGurus, Inc. (NASDAQ:CARG), and Mantech International Corp (NASDAQ:MANT). All of these stocks' market caps are similar to WNS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCEL,15,130882,-2 MSTR,15,134684,-5 JMIA,13,241648,4 SBRA,20,105665,-4 TREE,26,846306,6 CARG,33,381083,1 MANT,11,15468,-6 Average,19,265105,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $265 million. That figure was $288 million in WNS's case. CarGurus, Inc. (NASDAQ:CARG) is the most popular stock in this table. On the other hand Mantech International Corp (NASDAQ:MANT) is the least popular one with only 11 bullish hedge fund positions. WNS (Holdings) Limited (NYSE:WNS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WNS is 64.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately WNS wasn't nearly as popular as these 30 stocks and hedge funds that were betting on WNS were disappointed as the stock returned 2.1% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 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.