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.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in West Pharmaceutical Services Inc. (NYSE:WST)? The smart money sentiment can provide an answer to this question.
West Pharmaceutical Services Inc. (NYSE:WST) has experienced a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that WST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To most stock holders, hedge funds are assumed to be underperforming, outdated investment vehicles of years past. While there are greater than 8000 funds in operation at the moment, Our experts hone in on the top tier of this club, about 850 funds. Most estimates calculate that this group of people direct the lion’s share of all hedge funds’ total capital, and by tailing their unrivaled investments, Insider Monkey has determined various investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ken Fisher of Fisher 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. Now we’re going to go over the key hedge fund action regarding West Pharmaceutical Services Inc. (NYSE:WST).
Hedge fund activity in West Pharmaceutical Services Inc. (NYSE:WST)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in WST a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the biggest position in West Pharmaceutical Services Inc. (NYSE:WST), worth close to $108.9 million, corresponding to 0.1% of its total 13F portfolio. The second most bullish fund manager is of Renaissance Technologies, with a $84.2 million position; 0.1% of its 13F portfolio is allocated to the company. Some other members of the smart money that hold long positions encompass Israel Englander’s Millennium Management, Barry Dargan’s Intermede Investment Partners and Cliff Asness’s AQR Capital Management. 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 1.92% of its 13F portfolio. Rock Springs Capital Management is also relatively very bullish on the stock, designating 0.72 percent of its 13F equity portfolio to WST.
Because West Pharmaceutical Services Inc. (NYSE:WST) has experienced declining sentiment from the smart money, we can see that there exists a select few hedge funds that slashed their positions entirely by the end of the third quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital cut the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $24.8 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund dumped about $6.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as West Pharmaceutical Services Inc. (NYSE:WST) but similarly valued. We will take a look at Brown & Brown, Inc. (NYSE:BRO), Melco Resorts & Entertainment Limited (NASDAQ:MLCO), Carlyle Group LP (NASDAQ:CG), and Advance Auto Parts, Inc. (NYSE:AAP). All of these stocks’ market caps resemble WST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BRO | 23 | 703042 | -8 |
| MLCO | 35 | 836262 | 8 |
| CG | 13 | 213484 | 5 |
| AAP | 42 | 1621720 | 1 |
| Average | 28.25 | 843627 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $844 million. That figure was $428 million in WST’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table. On the other hand Carlyle Group LP (NASDAQ:CG) is the least popular one with only 13 bullish hedge fund positions. West Pharmaceutical Services Inc. (NYSE:WST) 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 WST as the stock returned -13.1% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
