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. 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 at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Watsco Inc (NYSE:WSO).
Is Watsco Inc (NYSE:WSO) ready to rally soon? The smart money is buying. The number of long hedge fund bets moved up by 1 recently. Our calculations also showed that WSO 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).
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 was 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’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.
Tom Gayner of Markel Gayner Asset 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. Keeping this in mind we’re going to view the new hedge fund action regarding Watsco Inc (NYSE:WSO).
Hedge fund activity in Watsco Inc (NYSE:WSO)
Heading into the first quarter of 2020, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WSO over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Markel Gayner Asset Management was the largest shareholder of Watsco Inc (NYSE:WSO), with a stake worth $69.8 million reported as of the end of September. Trailing Markel Gayner Asset Management was Carlson Capital, which amassed a stake valued at $40.5 million. Motley Fool Asset Management, Millennium Management, and GLG Partners 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 Motley Fool Asset Management allocated the biggest weight to Watsco Inc (NYSE:WSO), around 2.96% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, dishing out 0.97 percent of its 13F equity portfolio to WSO.
With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Sciencast Management, managed by Qing Li, created the most outsized position in Watsco Inc (NYSE:WSO). Sciencast Management had $0.8 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also initiated a $0.6 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Donald Sussman’s Paloma Partners, and Renaissance Technologies.
Let’s go over hedge fund activity in other stocks similar to Watsco Inc (NYSE:WSO). We will take a look at argenx SE (NASDAQ:ARGX), Elbit Systems Ltd. (NASDAQ:ESLT), Encompass Health Corporation (NYSE:EHC), and Prosperity Bancshares, Inc. (NYSE:PB). All of these stocks’ market caps match WSO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARGX | 26 | 788285 | 0 |
| ESLT | 3 | 12089 | 0 |
| EHC | 29 | 360336 | 4 |
| PB | 22 | 179901 | 4 |
| Average | 20 | 335153 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $335 million. That figure was $192 million in WSO’s case. Encompass Health Corporation (NYSE:EHC) is the most popular stock in this table. On the other hand Elbit Systems Ltd. (NASDAQ:ESLT) is the least popular one with only 3 bullish hedge fund positions. Watsco Inc (NYSE:WSO) 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 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 still beat the market by 3.2 percentage points. Hedge funds were also right about betting on WSO as the stock returned -12.8% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
