Do Hedge Funds Love Williams Companies, Inc. (WMB)?

In this article we will check out the progression of hedge fund sentiment towards Williams Companies, Inc. (NYSE:WMB) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Williams Companies, Inc. (NYSE:WMB) a first-rate investment right now? The smart money was becoming less hopeful. The number of long hedge fund positions were trimmed by 4 lately. Williams Companies, Inc. (NYSE:WMB) was in 34 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 73. Our calculations also showed that WMB isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 38 hedge funds in our database with WMB positions at the end of the fourth quarter.

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 115 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.

Mason Hawkins of Southeastern Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s view the recent hedge fund action surrounding Williams Companies, Inc. (NYSE:WMB).

Do Hedge Funds Think WMB Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from one quarter earlier. By comparison, 47 hedge funds held shares or bullish call options in WMB a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Mason Hawkins’s Southeastern Asset Management has the number one position in Williams Companies, Inc. (NYSE:WMB), worth close to $195.7 million, amounting to 4.2% of its total 13F portfolio. Sitting at the No. 2 spot is Bernard Horn of Polaris Capital Management, with a $50.2 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism consist of Israel Englander’s Millennium Management, Phill Gross and Robert Atchinson’s Adage Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Williams Companies, Inc. (NYSE:WMB), around 5.98% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, earmarking 4.19 percent of its 13F equity portfolio to WMB.

Due to the fact that Williams Companies, Inc. (NYSE:WMB) has faced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of fund managers who sold off their entire stakes by the end of the first quarter. Interestingly, James Dondero’s Highland Capital Management sold off the biggest position of all the hedgies monitored by Insider Monkey, valued at an estimated $11.4 million in stock, and Jay Petschek and Steven Major’s Corsair Capital Management was right behind this move, as the fund dropped about $8.1 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Williams Companies, Inc. (NYSE:WMB) but similarly valued. We will take a look at Verisk Analytics, Inc. (NASDAQ:VRSK), Best Buy Co., Inc. (NYSE:BBY), Waste Connections, Inc. (NYSE:WCN), ResMed Inc. (NYSE:RMD), KKR & Co Inc. (NYSE:KKR), Old Dominion Freight Line (NASDAQ:ODFL), and Unity Software Inc. (NYSE:U). All of these stocks’ market caps resemble WMB’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.9 hedge funds with bullish positions and the average amount invested in these stocks was $2254 million. That figure was $475 million in WMB’s case. KKR & Co Inc. (NYSE:KKR) is the most popular stock in this table. On the other hand ResMed Inc. (NYSE:RMD) is the least popular one with only 25 bullish hedge fund positions. Williams Companies, Inc. (NYSE:WMB) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WMB is 29.5. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on WMB as the stock returned 14.7% since the end of the first quarter (through 6/25) and outperformed the market by an even larger margin.

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

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