World-class money managers like Ken Griffin and Barry Rosenstein only invest their wealthy clients’ money after undertaking a rigorous examination of any potential stock. They are particularly successful in this regard when it comes to small-cap stocks, which their peerless research gives them a big information advantage on when it comes to judging their worth. It’s not surprising then that they generate their biggest returns from these stocks and invest more of their money in these stocks on average than other investors. It’s also not surprising then that we pay close attention to these picks ourselves and have built a market-beating investment strategy around them.
Is WABCO Holdings Inc. (NYSE:WBC) a bargain? The smart money is taking an optimistic view. The number of long hedge fund positions increased by 22 in recent months. Our calculations also showed that wbc isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
We’re going to go over the recent hedge fund action encompassing WABCO Holdings Inc. (NYSE:WBC).
What have hedge funds been doing with WABCO Holdings Inc. (NYSE:WBC)?
At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 157% from the fourth quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in WBC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, York Capital Management was the largest shareholder of WABCO Holdings Inc. (NYSE:WBC), with a stake worth $125.8 million reported as of the end of March. Trailing York Capital Management was FPR Partners, which amassed a stake valued at $116.6 million. Magnetar Capital, Alpine Associates, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key money managers were leading the bulls’ herd. York Capital Management, managed by James Dinan, assembled the most outsized position in WABCO Holdings Inc. (NYSE:WBC). York Capital Management had $125.8 million invested in the company at the end of the quarter. Alec Litowitz and Ross Laser’s Magnetar Capital also made a $97.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Robert Emil Zoellner’s Alpine Associates, Florian Kronawitter’s White Square Capital, and John Orrico’s Water Island Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as WABCO Holdings Inc. (NYSE:WBC) but similarly valued. These stocks are World Wrestling Entertainment, Inc. (NYSE:WWE), Grupo Televisa SAB (NYSE:TV), American Homes 4 Rent (NYSE:AMH), and Proofpoint Inc (NASDAQ:PFPT). All of these stocks’ market caps resemble WBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WWE | 47 | 1022250 | 13 |
| TV | 16 | 889924 | 2 |
| AMH | 19 | 462109 | 1 |
| PFPT | 33 | 659720 | 6 |
| Average | 28.75 | 758501 | 5.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $759 million. That figure was $801 million in WBC’s case. World Wrestling Entertainment, Inc. (NYSE:WWE) is the most popular stock in this table. On the other hand Grupo Televisa SAB (NYSE:TV) is the least popular one with only 16 bullish hedge fund positions. WABCO Holdings Inc. (NYSE:WBC) 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 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on WBC, though not to the same extent, as the stock returned -1.1% during the same time frame and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.
