Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips on the charts, usually don’t make them change their opinion towards a company. This time it may be different. During the fourth quarter of 2018 we observed increased volatility and small-cap stocks underperformed the market. Hedge fund investor letters indicated that they are cutting their overall exposure, closing out some position and doubling down on others. Let’s take a look at the hedge fund sentiment towards WMS Industries Inc. (NYSE:WMS) to find out whether it was one of their high conviction long-term ideas.
Hedge fund interest in WMS Industries Inc. (NYSE:WMS) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare WMS to other stocks including Summit Materials Inc (NYSE:SUM), Seaspan Corporation (NYSE:SSW), and Rush Enterprises, Inc. (NASDAQ:RUSHB) to get a better sense of its popularity.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 our short portfolio.
We’re going to view the new hedge fund action regarding WMS Industries Inc. (NYSE:WMS).
What have hedge funds been doing with WMS Industries Inc. (NYSE:WMS)?
At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WMS over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Stockbridge Partners was the largest shareholder of WMS Industries Inc. (NYSE:WMS), with a stake worth $91.1 million reported as of the end of September. Trailing Stockbridge Partners was Impax Asset Management, which amassed a stake valued at $84 million. PAR Capital Management, ACK Asset Management, and White Elm Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Because WMS Industries Inc. (NYSE:WMS) has witnessed falling interest from hedge fund managers, we can see that there exists a select few funds who were dropping their full holdings heading into Q3. At the top of the heap, Joel Greenblatt’s Gotham Asset Management dropped the biggest stake of all the hedgies monitored by Insider Monkey, worth about $0.6 million in stock. Jeffrey Talpins’s fund, Element Capital Management, also sold off its stock, about $0.4 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 WMS Industries Inc. (NYSE:WMS). We will take a look at Summit Materials Inc (NYSE:SUM), Seaspan Corporation (NYSE:SSW), Rush Enterprises, Inc. (NASDAQ:RUSHB), and Magellan Health Inc (NASDAQ:MGLN). This group of stocks’ market values are similar to WMS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SUM | 20 | 408215 | -1 |
| SSW | 12 | 335655 | 4 |
| RUSHB | 3 | 31783 | -2 |
| MGLN | 15 | 299824 | -5 |
| Average | 12.5 | 268869 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $269 million. That figure was $299 million in WMS’s case. Summit Materials Inc (NYSE:SUM) is the most popular stock in this table. On the other hand Rush Enterprises, Inc. (NASDAQ:RUSHB) is the least popular one with only 3 bullish hedge fund positions. WMS Industries Inc. (NYSE:WMS) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately WMS wasn’t nearly as popular as these 15 stock and hedge funds that were betting on WMS were disappointed as the stock returned 12.1% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
