Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Wright Medical Group N.V. (NASDAQ:WMGI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Wright Medical Group N.V. (NASDAQ:WMGI) shareholders have witnessed an increase in hedge fund interest recently. WMGI was in 46 hedge funds’ portfolios at the end of December. There were 39 hedge funds in our database with WMGI positions at the end of the previous quarter. Our calculations also showed that WMGI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 41 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
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action surrounding Wright Medical Group N.V. (NASDAQ:WMGI).
How have hedgies been trading Wright Medical Group N.V. (NASDAQ:WMGI)?
Heading into the first quarter of 2020, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WMGI over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in Wright Medical Group N.V. (NASDAQ:WMGI) was held by Magnetar Capital, which reported holding $183.5 million worth of stock at the end of September. It was followed by Millennium Management with a $172 million position. Other investors bullish on the company included Alpine Associates, Carlson Capital, and Palo Alto Investors. In terms of the portfolio weights assigned to each position Fort Baker Capital Management allocated the biggest weight to Wright Medical Group N.V. (NASDAQ:WMGI), around 10.31% of its 13F portfolio. Kettle Hill Capital Management is also relatively very bullish on the stock, designating 8.51 percent of its 13F equity portfolio to WMGI.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Magnetar Capital, managed by Alec Litowitz and Ross Laser, established the largest position in Wright Medical Group N.V. (NASDAQ:WMGI). Magnetar Capital had $183.5 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $161.5 million position during the quarter. The other funds with brand new WMGI positions are Clint Carlson’s Carlson Capital, Michel Massoud’s Melqart Asset Management, and John Orrico’s Water Island Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Wright Medical Group N.V. (NASDAQ:WMGI) but similarly valued. These stocks are Schneider National, Inc. (NYSE:SNDR), New Relic Inc (NYSE:NEWR), FirstService Corporation (NASDAQ:FSV), and Laureate Education, Inc. (NASDAQ:LAUR). This group of stocks’ market valuations match WMGI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SNDR | 22 | 115086 | 4 |
| NEWR | 44 | 933575 | 8 |
| FSV | 12 | 170393 | -1 |
| LAUR | 34 | 360118 | 7 |
| Average | 28 | 394793 | 4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $395 million. That figure was $1070 million in WMGI’s case. New Relic Inc (NYSE:NEWR) is the most popular stock in this table. On the other hand FirstService Corporation (NASDAQ:FSV) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Wright Medical Group N.V. (NASDAQ:WMGI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on WMGI as the stock returned -7.2% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
