Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Waste Management, Inc. (NYSE:WM) was in 46 hedge funds’ portfolios at the end of September. WM has seen an increase in hedge fund sentiment recently. There were 35 hedge funds in our database with WM positions at the end of the previous quarter. Our calculations also showed that WM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the new hedge fund action regarding Waste Management, Inc. (NYSE:WM).
How are hedge funds trading Waste Management, Inc. (NYSE:WM)?
At the end of the third quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WM over the last 17 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 Waste Management, Inc. (NYSE:WM) was held by Bill & Melinda Gates Foundation Trust, which reported holding $2142.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $429 million position. Other investors bullish on the company included Senator Investment Group, Impax Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 10.1% of its 13F portfolio. Lunia Capital is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to WM.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Stevens Capital Management, managed by Matthew Tewksbury, created the most outsized position in Waste Management, Inc. (NYSE:WM). Stevens Capital Management had $9.5 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $3.7 million investment in the stock during the quarter. The following funds were also among the new WM investors: Paul Tudor Jones’s Tudor Investment Corp, Alec Litowitz and Ross Laser’s Magnetar Capital, and Benjamin A. Smith’s Laurion Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Waste Management, Inc. (NYSE:WM) but similarly valued. These stocks are American International Group Inc (NYSE:AIG), TransCanada Corporation (NYSE:TRP), Infosys Limited (NYSE:INFY), and Simon Property Group, Inc (NYSE:SPG). All of these stocks’ market caps match WM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AIG | 49 | 2451222 | 8 |
| TRP | 18 | 272298 | 6 |
| INFY | 24 | 1437631 | -1 |
| SPG | 25 | 698285 | -1 |
| Average | 29 | 1214859 | 3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1215 million. That figure was $3533 million in WM’s case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand TransCanada Corporation (NYSE:TRP) is the least popular one with only 18 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately WM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WM were disappointed as the stock returned 29.2% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
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.
