It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like WillScot Corporation (NASDAQ:WSC).
WillScot Corporation (NASDAQ:WSC) was in 24 hedge funds’ portfolios at the end of September. WSC investors should pay attention to an increase in support from the world’s most elite money managers recently. There were 23 hedge funds in our database with WSC holdings at the end of the previous quarter. Our calculations also showed that WSC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
David Harding of Winton Capital Management
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the fresh hedge fund action encompassing WillScot Corporation (NASDAQ:WSC).
How are hedge funds trading WillScot Corporation (NASDAQ:WSC)?
Heading into the fourth quarter of 2019, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from the second quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in WSC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, David Rosen’s Rubric Capital Management has the number one position in WillScot Corporation (NASDAQ:WSC), worth close to $41.7 million, corresponding to 3.8% of its total 13F portfolio. Coming in second is Traci Lerner of Chescapmanager LLC, with a $28.6 million position; 4.1% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions encompass Richard Scott Greeder’s Broad Bay Capital, Bernard Selz’s Selz Capital and Jerome L. Simon’s Lonestar Capital Management. In terms of the portfolio weights assigned to each position Broad Bay Capital allocated the biggest weight to WillScot Corporation (NASDAQ:WSC), around 6.95% of its portfolio. Lonestar Capital Management is also relatively very bullish on the stock, dishing out 6.07 percent of its 13F equity portfolio to WSC.
As one would reasonably expect, key money managers have jumped into WillScot Corporation (NASDAQ:WSC) headfirst. Driehaus Capital, managed by Richard Driehaus, initiated the largest position in WillScot Corporation (NASDAQ:WSC). Driehaus Capital had $1.9 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also made a $1.7 million investment in the stock during the quarter. The other funds with brand new WSC positions are Louis Bacon’s Moore Global Investments, David Harding’s Winton Capital Management, and Jonathan Soros’s JS Capital.
Let’s also examine hedge fund activity in other stocks similar to WillScot Corporation (NASDAQ:WSC). These stocks are Hostess Brands, Inc. (NASDAQ:TWNK), BancFirst Corporation (NASDAQ:BANF), Varonis Systems Inc (NASDAQ:VRNS), and BrightView Holdings, Inc. (NYSE:BV). All of these stocks’ market caps resemble WSC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TWNK | 31 | 291630 | 5 |
| BANF | 9 | 46666 | 0 |
| VRNS | 23 | 409397 | -1 |
| BV | 10 | 284642 | 2 |
| Average | 18.25 | 258084 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $258 million. That figure was $213 million in WSC’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand BancFirst Corporation (NASDAQ:BANF) is the least popular one with only 9 bullish hedge fund positions. WillScot Corporation (NASDAQ:WSC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on WSC as the stock returned 14% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
