Did Hedge Funds Make The Right Call On Waste Connections, Inc. (WCN) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Waste Connections, Inc. (NYSE:WCN) and determine whether hedge funds skillfully traded this stock.

Waste Connections, Inc. (NYSE:WCN) investors should pay attention to a decrease in enthusiasm from smart money lately. Our calculations also showed that WCN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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’ 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 58 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to take a look at the new hedge fund action encompassing Waste Connections, Inc. (NYSE:WCN).

What have hedge funds been doing with Waste Connections, Inc. (NYSE:WCN)?

Heading into the second quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in WCN a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Waste Connections, Inc. (NYSE:WCN) was held by Renaissance Technologies, which reported holding $156.2 million worth of stock at the end of September. It was followed by Senator Investment Group with a $46.5 million position. Other investors bullish on the company included Osterweis Capital Management, Two Sigma Advisors, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Waste Connections, Inc. (NYSE:WCN), around 6.56% of its 13F portfolio. Brasada Capital Management is also relatively very bullish on the stock, designating 3.21 percent of its 13F equity portfolio to WCN.

Judging by the fact that Waste Connections, Inc. (NYSE:WCN) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers that elected to cut their full holdings last quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $25.4 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dumped its stock, about $13.8 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Waste Connections, Inc. (NYSE:WCN). These stocks are Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Cummins Inc. (NYSE:CMI), Liberty Broadband Corp (NASDAQ:LBRDK), and ING Groep N.V. (NYSE:ING). This group of stocks’ market caps are closest to WCN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $1025 million. That figure was $465 million in WCN’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA) is the least popular one with only 8 bullish hedge fund positions. Waste Connections, Inc. (NYSE:WCN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on WCN, though not to the same extent, as the stock returned 21.3% during the second quarter and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.