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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Williams-Sonoma, Inc. (NYSE:WSM) 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.
Williams-Sonoma, Inc. (NYSE:WSM) shareholders have witnessed an increase in activity from the world’s largest hedge funds of late. WSM was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 26 hedge funds in our database with WSM positions at the end of the previous quarter. Our calculations also showed that WSM 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).
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 was able to identify in advance a select group of hedge fund holdings that 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.
Wall Street Bull
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. Keeping this in mind we’re going to take a look at the latest hedge fund action regarding Williams-Sonoma, Inc. (NYSE:WSM).
What does smart money think about Williams-Sonoma, Inc. (NYSE:WSM)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in WSM a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in Williams-Sonoma, Inc. (NYSE:WSM), which was worth $100.8 million at the end of the third quarter. On the second spot was Junto Capital Management which amassed $54.5 million worth of shares. D E Shaw, Armistice Capital, and Balyasny Asset Management were 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 Junto Capital Management allocated the biggest weight to Williams-Sonoma, Inc. (NYSE:WSM), around 2.57% of its 13F portfolio. Armistice Capital is also relatively very bullish on the stock, designating 1.89 percent of its 13F equity portfolio to WSM.
As one would reasonably expect, specific money managers were leading the bulls’ herd. Armistice Capital, managed by Steven Boyd, created the most outsized position in Williams-Sonoma, Inc. (NYSE:WSM). Armistice Capital had $32.8 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $22.4 million investment in the stock during the quarter. The following funds were also among the new WSM investors: Jay Genzer’s Thames Capital Management, Angela Aldrich’s Bayberry Capital Partners, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Williams-Sonoma, Inc. (NYSE:WSM) but similarly valued. These stocks are Popular Inc (NASDAQ:BPOP), Avalara, Inc. (NYSE:AVLR), 51job, Inc. (NASDAQ:JOBS), and Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR). This group of stocks’ market valuations are similar to WSM’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BPOP | 33 | 817539 | 2 |
| AVLR | 47 | 1055451 | -1 |
| JOBS | 8 | 19080 | 0 |
| ASR | 10 | 61093 | 6 |
| Average | 24.5 | 488291 | 1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $488 million. That figure was $336 million in WSM’s case. Avalara, Inc. (NYSE:AVLR) is the most popular stock in this table. On the other hand 51job, Inc. (NASDAQ:JOBS) is the least popular one with only 8 bullish hedge fund positions. Williams-Sonoma, Inc. (NYSE:WSM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately WSM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WSM were disappointed as the stock returned -40.1% 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 many of these stocks already outperformed the market so far this year.
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.
