It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like West Pharmaceutical Services Inc. (NYSE:WST) and compare its performance against hedge funds’ favorite stocks.
West Pharmaceutical Services Inc. (NYSE:WST) shareholders have witnessed an increase in hedge fund interest of late. WST was in 30 hedge funds’ portfolios at the end of September. There were 24 hedge funds in our database with WST holdings at the end of the previous quarter. Our calculations also showed that WST 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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 is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s take a look at the key hedge fund action regarding West Pharmaceutical Services Inc. (NYSE:WST).
What does smart money think about West Pharmaceutical Services Inc. (NYSE:WST)?
Heading into the fourth quarter of 2019, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WST 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.
Among these funds, Fisher Asset Management held the most valuable stake in West Pharmaceutical Services Inc. (NYSE:WST), which was worth $127 million at the end of the third quarter. On the second spot was Millennium Management which amassed $95.4 million worth of shares. Renaissance Technologies, Intermede Investment Partners, and AQR Capital Management 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 Intermede Investment Partners allocated the biggest weight to West Pharmaceutical Services Inc. (NYSE:WST), around 2.33% of its 13F portfolio. ExodusPoint Capital is also relatively very bullish on the stock, setting aside 0.87 percent of its 13F equity portfolio to WST.
Now, some big names have been driving this bullishness. Marshall Wace, managed by Paul Marshall and Ian Wace, established the most outsized position in West Pharmaceutical Services Inc. (NYSE:WST). Marshall Wace had $4.1 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $2.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, David E. Shaw’s D E Shaw, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as West Pharmaceutical Services Inc. (NYSE:WST) but similarly valued. These stocks are Globe Life Inc. (NYSE:GL), VICI Properties Inc. (NYSE:VICI), RingCentral Inc (NYSE:RNG), and Wayfair Inc (NYSE:W). All of these stocks’ market caps match WST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GL | 19 | 828753 | 0 |
| VICI | 37 | 2262889 | -22 |
| RNG | 48 | 1615607 | 3 |
| W | 30 | 1831086 | -2 |
| Average | 33.5 | 1634584 | -5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $1635 million. That figure was $494 million in WST’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Globe Life Inc. (NYSE:GL) is the least popular one with only 19 bullish hedge fund positions. West Pharmaceutical Services Inc. (NYSE:WST) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on WST as the stock returned 54.1% in 2019 and outclassed the market by an even larger margin.
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.
