We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Woori Financial Group Inc. (NYSE:WF).
Hedge fund interest in Woori Financial Group Inc. (NYSE:WF) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Nielsen Holdings plc (NYSE:NLSN), TCF Financial Corporation (NYSE:TCF), and Axalta Coating Systems Ltd (NYSE:AXTA) to gather more data points. Our calculations also showed that WF isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="400"] Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now we're going to check out the recent hedge fund action encompassing Woori Financial Group Inc. (NYSE:WF).
Hedge fund activity in Woori Financial Group Inc. (NYSE:WF)
At the end of the fourth quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the third quarter of 2019. By comparison, 2 hedge funds held shares or bullish call options in WF a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Woori Financial Group Inc. (NYSE:WF), with a stake worth $3.4 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $0.2 million. Marshall Wace LLP was 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 Arrowstreet Capital allocated the biggest weight to Woori Financial Group Inc. (NYSE:WF), around 0.01% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, designating 0.0006 percent of its 13F equity portfolio to WF.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Quantamental Technologies. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Woori Financial Group Inc. (NYSE:WF) but similarly valued. These stocks are Nielsen Holdings plc (NYSE:NLSN), TCF Financial Corporation (NASDAQ:TCF), Axalta Coating Systems Ltd (NYSE:AXTA), and Five Below Inc (NASDAQ:FIVE). This group of stocks' market caps are similar to WF's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NLSN,29,1163597,-5 TCF,24,237950,-7 AXTA,60,1990462,0 FIVE,42,614848,5 Average,38.75,1001714,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.75 hedge funds with bullish positions and the average amount invested in these stocks was $1002 million. That figure was $4 million in WF's case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand TCF Financial Corporation (NASDAQ:TCF) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Woori Financial Group Inc. (NYSE:WF) is even less popular than TCF. Hedge funds dodged a bullet by taking a bearish stance towards WF. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately WF wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WF investors were disappointed as the stock returned -39.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.