As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds' thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Woodward Inc (NASDAQ:WWD).
Woodward Inc (NASDAQ:WWD) shareholders have witnessed a decrease in hedge fund sentiment of late. Our calculations also showed that WWD 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.
Why do we pay any attention at all to hedge fund sentiment? 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_26255" align="aligncenter" width="450"] Louis Navellier of Navellier & Associates[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the recent hedge fund action surrounding Woodward Inc (NASDAQ:WWD).
What have hedge funds been doing with Woodward Inc (NASDAQ:WWD)?
At Q3's end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from one quarter earlier. By comparison, 14 hedge funds held shares or bullish call options in WWD a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
The largest stake in Woodward Inc (NASDAQ:WWD) was held by AQR Capital Management, which reported holding $74.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $73 million position. Other investors bullish on the company included Citadel Investment Group, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Nishkama Capital allocated the biggest weight to Woodward Inc (NASDAQ:WWD), around 7.58% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, dishing out 0.68 percent of its 13F equity portfolio to WWD.
Since Woodward Inc (NASDAQ:WWD) has faced bearish sentiment from the smart money, we can see that there exists a select few funds that slashed their full holdings by the end of the third quarter. It's worth mentioning that Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital cut the biggest position of the "upper crust" of funds followed by Insider Monkey, valued at about $19.7 million in stock, and Brandon Haley's Holocene Advisors was right behind this move, as the fund said goodbye to about $10.8 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Woodward Inc (NASDAQ:WWD) but similarly valued. We will take a look at Commerce Bancshares, Inc. (NASDAQ:CBSH), Chemed Corporation (NYSE:CHE), Donaldson Company, Inc. (NYSE:DCI), and Reliance Steel & Aluminum Co. (NYSE:RS). This group of stocks' market values are similar to WWD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CBSH,9,29611,-2 CHE,20,388232,-1 DCI,21,199801,5 RS,22,313426,3 Average,18,232768,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $233 million. That figure was $341 million in WWD's case. Reliance Steel & Aluminum Co. (NYSE:RS) is the most popular stock in this table. On the other hand Commerce Bancshares, Inc. (NASDAQ:CBSH) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Woodward Inc (NASDAQ:WWD) is more popular among hedge funds. 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. Hedge funds were also right about betting on WWD, though not to the same extent, as the stock returned 8.5% during the fourth quarter (through the end of November) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.