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Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren't timid and registered double digit market beating gains. Financials, energy and industrial stocks aren't doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to World Acceptance Corp. (NASDAQ:WRLD) changed recently.
Is WRLD a good stock to buy now? World Acceptance Corp. (NASDAQ:WRLD) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 12 hedge funds' portfolios at the end of September. Our calculations also showed that WRLD isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). 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 PAE Incorporated (NASDAQ:PAE), Douglas Dynamics Inc (NYSE:PLOW), and Trean Insurance Group, Inc. (NASDAQ:TIG) to gather more data points.
Video: 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 a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
David Harding of Winton Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. Now we're going to analyze the recent hedge fund action surrounding World Acceptance Corp. (NASDAQ:WRLD).
Do Hedge Funds Think WRLD Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in WRLD a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, CAS Investment Partners, managed by Clifford A. Sosin, holds the most valuable position in World Acceptance Corp. (NASDAQ:WRLD). CAS Investment Partners has a $74.7 million position in the stock, comprising 5.2% of its 13F portfolio. Coming in second is Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, which holds a $22.4 million position; the fund has 0.7% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism comprise Andrew Bellas's General Equity Partners, Renaissance Technologies and David Harding's Winton Capital Management. In terms of the portfolio weights assigned to each position General Equity Partners allocated the biggest weight to World Acceptance Corp. (NASDAQ:WRLD), around 12.23% of its 13F portfolio. CAS Investment Partners is also relatively very bullish on the stock, designating 5.18 percent of its 13F equity portfolio to WRLD.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. 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 Marshall Wace LLP).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as World Acceptance Corp. (NASDAQ:WRLD) but similarly valued. We will take a look at PAE Incorporated (NASDAQ:PAE), Douglas Dynamics Inc (NYSE:PLOW), Trean Insurance Group, Inc. (NASDAQ:TIG), Keros Therapeutics, Inc. (NASDAQ:KROS), i3 Verticals, Inc. (NASDAQ:IIIV), Newmark Group, Inc. (NASDAQ:NMRK), and Triumph Bancorp Inc (NASDAQ:TBK). This group of stocks' market values match WRLD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAE,17,107936,0 PLOW,7,4584,0 TIG,14,49185,14 KROS,8,214776,-3 IIIV,18,68722,6 NMRK,19,88996,-5 TBK,5,33554,-2 Average,12.6,81108,1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.6 hedge funds with bullish positions and the average amount invested in these stocks was $81 million. That figure was $138 million in WRLD's case. Newmark Group, Inc. (NASDAQ:NMRK) is the most popular stock in this table. On the other hand Triumph Bancorp Inc (NASDAQ:TBK) is the least popular one with only 5 bullish hedge fund positions. World Acceptance Corp. (NASDAQ:WRLD) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WRLD is 51.2. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately WRLD wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WRLD investors were disappointed as the stock returned 10.4% since the end of September (through 12/8) 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 in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.