Is Western Alliance Bancorporation (NYSE:WAL) a good bet right now? We like to analyze hedge fund sentiment before doing days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Hedge fund interest in Western Alliance Bancorporation (NYSE:WAL) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as OneMain Holdings Inc (NYSE:OMF), Lancaster Colony Corporation (NASDAQ:LANC), and Kinross Gold Corporation (NYSE:KGC) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to analyze the key hedge fund action encompassing Western Alliance Bancorporation (NYSE:WAL).
How have hedgies been trading Western Alliance Bancorporation (NYSE:WAL)?
At the end of the first quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in WAL a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Western Alliance Bancorporation (NYSE:WAL), which was worth $107.8 million at the end of the first quarter. On the second spot was Two Sigma Advisors which amassed $33.5 million worth of shares. Moreover, Arrowstreet Capital, Millennium Management, and Interval Partners were also bullish on Western Alliance Bancorporation (NYSE:WAL), allocating a large percentage of their portfolios to this stock.
Because Western Alliance Bancorporation (NYSE:WAL) has witnessed declining sentiment from hedge fund managers, logic holds that there were a few hedge funds that elected to cut their positions entirely last quarter. At the top of the heap, Robert B. Gillam’s McKinley Capital Management dropped the biggest position of all the hedgies followed by Insider Monkey, worth about $6.1 million in stock. David Costen Haley’s fund, HBK Investments, also dumped its stock, about $2.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Western Alliance Bancorporation (NYSE:WAL). These stocks are OneMain Holdings Inc (NYSE:OMF), Lancaster Colony Corporation (NASDAQ:LANC), Kinross Gold Corporation (NYSE:KGC), and Lumentum Holdings Inc (NASDAQ:LITE). This group of stocks’ market caps match WAL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OMF | 31 | 237512 | 9 |
| LANC | 24 | 284865 | 12 |
| KGC | 19 | 318872 | 2 |
| LITE | 31 | 534593 | 0 |
| Average | 26.25 | 343961 | 5.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $289 million in WAL’s case. OneMain Holdings Inc (NYSE:OMF) is the most popular stock in this table. On the other hand Kinross Gold Corporation (NYSE:KGC) is the least popular one with only 19 bullish hedge fund positions. Western Alliance Bancorporation (NYSE:WAL) 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 WAL as the stock returned 3.4% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
