Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Waste Management, Inc. (NYSE:WM).
Waste Management, Inc. (NYSE:WM) investors should be aware of a decrease in hedge fund interest in recent months. Our calculations also showed that WM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to review the new hedge fund action regarding Waste Management, Inc. (NYSE:WM).
What have hedge funds been doing with Waste Management, Inc. (NYSE:WM)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -38% from the third quarter of 2019. By comparison, 36 hedge funds held shares or bullish call options in WM 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.
The largest stake in Waste Management, Inc. (NYSE:WM) was held by Bill & Melinda Gates Foundation Trust, which reported holding $2123.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $406.4 million position. Other investors bullish on the company included Impax Asset Management, Two Sigma Advisors, and Senator Investment Group. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 9.94% of its 13F portfolio. Valinor Management LLC is also relatively very bullish on the stock, setting aside 4.2 percent of its 13F equity portfolio to WM.
Due to the fact that Waste Management, Inc. (NYSE:WM) has faced declining sentiment from hedge fund managers, logic holds that there exists a select few fund managers who sold off their entire stakes by the end of the third quarter. At the top of the heap, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the largest investment of the 750 funds watched by Insider Monkey, worth close to $76.2 million in stock. Alexander Mitchell’s fund, Scopus Asset Management, also dumped its stock, about $28.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 20 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Waste Management, Inc. (NYSE:WM) but similarly valued. These stocks are Aon plc (NYSE:AON), Kinder Morgan Inc (NYSE:KMI), Capital One Financial Corp. (NYSE:COF), and DuPont de Nemours Inc (NYSE:DD). All of these stocks’ market caps match WM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AON | 51 | 2627235 | 6 |
| KMI | 40 | 1360313 | 2 |
| COF | 50 | 2041230 | 3 |
| DD | 68 | 2372175 | 16 |
| Average | 52.25 | 2100238 | 6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 52.25 hedge funds with bullish positions and the average amount invested in these stocks was $2100 million. That figure was $3262 million in WM’s case. DuPont de Nemours Inc (NYSE:DD) is the most popular stock in this table. On the other hand Kinder Morgan Inc (NYSE:KMI) is the least popular one with only 40 bullish hedge fund positions. Compared to these stocks Waste Management, Inc. (NYSE:WM) is even less popular than KMI. Hedge funds clearly dropped the ball on WM as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on WM as the stock returned -3.1% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
