Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. 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. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Total Return Index ETFs returned 27.5% through the end of November. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. 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 WisdomTree Investments, Inc. (NASDAQ:WETF).
WisdomTree Investments, Inc. (NASDAQ:WETF) has seen an increase in hedge fund interest of late. Our calculations also showed that WETF 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Israel Englander of Millennium 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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the new hedge fund action surrounding WisdomTree Investments, Inc. (NASDAQ:WETF).
How have hedgies been trading WisdomTree Investments, Inc. (NASDAQ:WETF)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 42% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WETF over the last 17 quarters. 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 WisdomTree Investments, Inc. (NASDAQ:WETF) was held by Millennium Management, which reported holding $14.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11.9 million position. Other investors bullish on the company included Citadel Investment Group, Azora Capital, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Azora Capital allocated the biggest weight to WisdomTree Investments, Inc. (NASDAQ:WETF), around 1.33% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, earmarking 0.83 percent of its 13F equity portfolio to WETF.
Now, key money managers have jumped into WisdomTree Investments, Inc. (NASDAQ:WETF) headfirst. Azora Capital, managed by Ravi Chopra, assembled the most valuable position in WisdomTree Investments, Inc. (NASDAQ:WETF). Azora Capital had $6 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Benjamin A. Smith’s Laurion Capital Management, Andrew Weiss’s Weiss Asset Management, and Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.
Let’s now review hedge fund activity in other stocks similar to WisdomTree Investments, Inc. (NASDAQ:WETF). We will take a look at Great Southern Bancorp, Inc. (NASDAQ:GSBC), Construction Partners, Inc. (NASDAQ:ROAD), Omeros Corporation (NASDAQ:OMER), and Oil States International, Inc. (NYSE:OIS). This group of stocks’ market values resemble WETF’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GSBC | 8 | 26357 | 0 |
| ROAD | 11 | 20671 | 5 |
| OMER | 6 | 86938 | -2 |
| OIS | 12 | 39976 | 3 |
| Average | 9.25 | 43486 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $56 million in WETF’s case. Oil States International, Inc. (NYSE:OIS) is the most popular stock in this table. On the other hand Omeros Corporation (NASDAQ:OMER) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks WisdomTree Investments, Inc. (NASDAQ:WETF) is more popular among hedge funds. 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. Unfortunately WETF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WETF were disappointed as the stock returned -6.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
