We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Western Digital Corporation (NASDAQ:WDC) and determine whether hedge funds skillfully traded this stock.
Is Western Digital Corporation (NASDAQ:WDC) going to take off soon? Hedge funds were taking an optimistic view. The number of bullish hedge fund positions advanced by 4 recently. Western Digital Corporation (NASDAQ:WDC) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistics is 44. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WDC 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). There were 45 hedge funds in our database with WDC holdings at the end of March.
Video: 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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.
Noam Gottesman of GLG Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Western Digital Corporation (NASDAQ:WDC).
Hedge fund activity in Western Digital Corporation (NASDAQ:WDC)
At the end of the second quarter, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WDC over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, holds the biggest position in Western Digital Corporation (NASDAQ:WDC). Lyrical Asset Management has a $188.6 million position in the stock, comprising 3.7% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $95.1 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Ken Griffin’s Citadel Investment Group, Renaissance Technologies and David Cohen and Harold Levy’s Iridian Asset Management. In terms of the portfolio weights assigned to each position KCL Capital allocated the biggest weight to Western Digital Corporation (NASDAQ:WDC), around 4.09% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, setting aside 3.78 percent of its 13F equity portfolio to WDC.
As industrywide interest jumped, specific money managers have jumped into Western Digital Corporation (NASDAQ:WDC) headfirst. Alyeska Investment Group, managed by Anand Parekh, initiated the most valuable position in Western Digital Corporation (NASDAQ:WDC). Alyeska Investment Group had $15.1 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also initiated a $2.6 million position during the quarter. The other funds with new positions in the stock are Joel Greenblatt’s Gotham Asset Management, Will Graves’s Boardman Bay Capital Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.
Let’s also examine hedge fund activity in other stocks similar to Western Digital Corporation (NASDAQ:WDC). These stocks are MongoDB, Inc. (NASDAQ:MDB), Tradeweb Markets Inc. (NASDAQ:TW), Mid America Apartment Communities Inc (NYSE:MAA), Liberty Global plc (NASDAQ:LBTYA), International Flavors & Fragrances Inc (NYSE:IFF), Duke Realty Corporation (NYSE:DRE), and Steris Plc (NYSE:STE). This group of stocks’ market valuations are similar to WDC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MDB | 37 | 1248081 | 7 |
| TW | 33 | 346714 | 3 |
| MAA | 30 | 503965 | 4 |
| LBTYA | 29 | 1048280 | -1 |
| IFF | 31 | 234080 | 3 |
| DRE | 19 | 102859 | 3 |
| STE | 40 | 545240 | 5 |
| Average | 31.3 | 575603 | 3.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $576 million. That figure was $584 million in WDC’s case. Steris Plc (NYSE:STE) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Western Digital Corporation (NASDAQ:WDC) is more popular among hedge funds. Our overall hedge fund sentiment score for WDC is 89. 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 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Unfortunately WDC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WDC were disappointed as the stock returned -13% since the end of the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
