At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards The Western Union Company (NYSE:WU).
Is The Western Union Company (NYSE:WU) a marvelous investment right now? The best stock pickers are buying. The number of bullish hedge fund bets increased by 5 lately. Our calculations also showed that WU isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). WU was in 34 hedge funds’ portfolios at the end of March. There were 29 hedge funds in our database with WU holdings at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
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 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 51 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.
Lee Ainslie of Maverick Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a glance at the fresh hedge fund action encompassing The Western Union Company (NYSE:WU).
What have hedge funds been doing with The Western Union Company (NYSE:WU)?
At Q1’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in WU a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
More specifically, International Value Advisers was the largest shareholder of The Western Union Company (NYSE:WU), with a stake worth $99.6 million reported as of the end of September. Trailing International Value Advisers was Renaissance Technologies, which amassed a stake valued at $38.5 million. Polaris Capital Management, Arrowstreet Capital, and D E Shaw 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 International Value Advisers allocated the biggest weight to The Western Union Company (NYSE:WU), around 6.3% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, dishing out 1.95 percent of its 13F equity portfolio to WU.
As industrywide interest jumped, specific money managers have jumped into The Western Union Company (NYSE:WU) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in The Western Union Company (NYSE:WU). Marshall Wace LLP had $10.4 million invested in the company at the end of the quarter. Thomas E. Claugus’s GMT Capital also made a $2.3 million investment in the stock during the quarter. The other funds with brand new WU positions are Matthew Hulsizer’s PEAK6 Capital Management, Greg Eisner’s Engineers Gate Manager, and Lee Ainslie’s Maverick Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Western Union Company (NYSE:WU) but similarly valued. These stocks are Monolithic Power Systems, Inc. (NASDAQ:MPWR), Peloton Interactive, Inc. (NASDAQ:PTON), Weibo Corp (NASDAQ:WB), and Huntington Ingalls Industries Inc (NYSE:HII). This group of stocks’ market caps match WU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MPWR | 23 | 390299 | -4 |
| PTON | 36 | 748425 | 6 |
| WB | 10 | 182637 | -1 |
| HII | 21 | 322441 | -1 |
| Average | 22.5 | 410951 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $411 million. That figure was $340 million in WU’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 10 bullish hedge fund positions. The Western Union Company (NYSE:WU) 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 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 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately WU wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WU were disappointed as the stock returned 10.4% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.
