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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Woodward Inc (NASDAQ:WWD) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Woodward Inc (NASDAQ:WWD) was in 22 hedge funds’ portfolios at the end of December. WWD has experienced a decrease in activity from the world’s largest hedge funds in recent months. There were 25 hedge funds in our database with WWD holdings at the end of the previous quarter. Our calculations also showed that WWD 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).
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.
Ken Griffin of Citadel Investment Group
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 take a look at the fresh hedge fund action encompassing Woodward Inc (NASDAQ:WWD).
How are hedge funds trading Woodward Inc (NASDAQ:WWD)?
At Q4’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -12% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WWD over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Woodward Inc (NASDAQ:WWD) was held by AQR Capital Management, which reported holding $83.1 million worth of stock at the end of September. It was followed by Royce & Associates with a $76.4 million position. Other investors bullish on the company included Citadel Investment Group, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Woodward Inc (NASDAQ:WWD), around 0.68% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 0.33 percent of its 13F equity portfolio to WWD.
Seeing as Woodward Inc (NASDAQ:WWD) has experienced a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there were a few hedge funds that decided to sell off their entire stakes heading into Q4. It’s worth mentioning that Phill Gross and Robert Atchinson’s Adage Capital Management said goodbye to the largest investment of all the hedgies followed by Insider Monkey, comprising close to $7.2 million in stock, and Ravee Mehta’s Nishkama Capital was right behind this move, as the fund dropped about $7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q4.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Woodward Inc (NASDAQ:WWD) but similarly valued. We will take a look at Guardant Health, Inc. (NASDAQ:GH), Robert Half International Inc. (NYSE:RHI), Gentex Corporation (NASDAQ:GNTX), and Steel Dynamics, Inc. (NASDAQ:STLD). All of these stocks’ market caps match WWD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GH | 29 | 639870 | 4 |
| RHI | 23 | 550331 | -1 |
| GNTX | 32 | 616430 | -1 |
| STLD | 35 | 506217 | 6 |
| Average | 29.75 | 578212 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.75 hedge funds with bullish positions and the average amount invested in these stocks was $578 million. That figure was $299 million in WWD’s case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand Robert Half International Inc. (NYSE:RHI) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Woodward Inc (NASDAQ:WWD) is even less popular than RHI. Hedge funds dodged a bullet by taking a bearish stance towards WWD. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 3.2 percentage points. Unfortunately WWD wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WWD investors were disappointed as the stock returned -45.8% 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 so far 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.
