We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about WEX Inc (NYSE:WEX).
Is WEX Inc (NYSE:WEX) the right pick for your portfolio? Prominent investors are becoming less confident. The number of long hedge fund positions dropped by 1 in recent months. Our calculations also showed that WEX 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). WEX was in 25 hedge funds’ portfolios at the end of December. There were 26 hedge funds in our database with WEX holdings at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Reeder of PAR Capital Management
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 we’re going to go over the fresh hedge fund action encompassing WEX Inc (NYSE:WEX).
What have hedge funds been doing with WEX Inc (NYSE:WEX)?
At Q4’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WEX over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Reeder and Edward Shapiro’s PAR Capital Management has the number one position in WEX Inc (NYSE:WEX), worth close to $151.9 million, accounting for 3% of its total 13F portfolio. Sitting at the No. 2 spot is Echo Street Capital Management, led by Greg Poole, holding a $106.9 million position; 1.6% of its 13F portfolio is allocated to the company. Other members of the smart money with similar optimism comprise Dmitry Balyasny’s Balyasny Asset Management, Clint Carlson’s Carlson Capital and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors. In terms of the portfolio weights assigned to each position BlueMar Capital Management allocated the biggest weight to WEX Inc (NYSE:WEX), around 4.69% of its 13F portfolio. PAR Capital Management is also relatively very bullish on the stock, setting aside 2.95 percent of its 13F equity portfolio to WEX.
Judging by the fact that WEX Inc (NYSE:WEX) has witnessed falling interest from hedge fund managers, it’s easy to see that there is a sect of funds that elected to cut their full holdings last quarter. Intriguingly, Principal Global Investors’s Columbus Circle Investors sold off the biggest stake of all the hedgies watched by Insider Monkey, worth an estimated $39.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund sold off about $26.9 million worth. These transactions are important to note, as total hedge fund interest was cut by 1 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks similar to WEX Inc (NYSE:WEX). These stocks are Guidewire Software Inc (NYSE:GWRE), Westlake Chemical Corporation (NYSE:WLK), Jones Lang LaSalle Inc (NYSE:JLL), and Lamar Advertising Co (NASDAQ:LAMR). All of these stocks’ market caps are closest to WEX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GWRE | 32 | 742137 | 8 |
| WLK | 22 | 335701 | 4 |
| JLL | 30 | 1283217 | -1 |
| LAMR | 28 | 251922 | -5 |
| Average | 28 | 653244 | 1.5 |
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 $653 million. That figure was $394 million in WEX’s case. Guidewire Software Inc (NYSE:GWRE) is the most popular stock in this table. On the other hand Westlake Chemical Corporation (NYSE:WLK) is the least popular one with only 22 bullish hedge fund positions. WEX Inc (NYSE:WEX) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately WEX wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WEX investors were disappointed as the stock returned -47.6% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
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.
