Hedge Funds Are Nibbling On Williams-Sonoma, Inc. (WSM)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Williams-Sonoma, Inc. (NYSE:WSM) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Williams-Sonoma, Inc. (NYSE:WSM) was in 27 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. WSM investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 26 hedge funds in our database with WSM positions at the end of the first quarter. Our calculations also showed that WSM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by more than 56 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. 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.

Clint Carlson of Carlson Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. With all of this in mind let’s go over the fresh hedge fund action regarding Williams-Sonoma, Inc. (NYSE:WSM).

How have hedgies been trading Williams-Sonoma, Inc. (NYSE:WSM)?

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in WSM a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Williams-Sonoma, Inc. (NYSE:WSM) was held by Select Equity Group, which reported holding $149.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $72.3 million position. Other investors bullish on the company included Arrowstreet Capital, D E Shaw, and Carlson Capital. In terms of the portfolio weights assigned to each position Carlson Capital allocated the biggest weight to Williams-Sonoma, Inc. (NYSE:WSM), around 0.92% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 0.86 percent of its 13F equity portfolio to WSM.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. Carlson Capital, managed by Clint Carlson, established the most valuable position in Williams-Sonoma, Inc. (NYSE:WSM). Carlson Capital had $33.4 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also made a $7.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Israel Englander’s Millennium Management, George McCabe’s Portolan Capital Management, and Greg Eisner’s Engineers Gate Manager.

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 Proofpoint Inc (NASDAQ:PFPT), Gentex Corporation (NASDAQ:GNTX), Pentair plc (NYSE:PNR), Bruker Corporation (NASDAQ:BRKR), TIM Participacoes SA (NYSE:TSU), Anaplan, Inc. (NYSE:PLAN), and MKS Instruments, Inc. (NASDAQ:MKSI). This group of stocks’ market valuations are similar to WSM’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $635 million. That figure was $458 million in WSM’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 15 bullish hedge fund positions. Williams-Sonoma, Inc. (NYSE:WSM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WSM is 49.8. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th and surpassed the market by 17.7 percentage points. Unfortunately WSM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WSM investors were disappointed as the stock returned 6.5% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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