We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Wingstop Inc (NASDAQ:WING).
Wingstop Inc (NASDAQ:WING) was in 23 hedge funds’ portfolios at the end of September. WING investors should pay attention to a decrease in enthusiasm from smart money of late. There were 24 hedge funds in our database with WING holdings at the end of the previous quarter. Our calculations also showed that WING isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.
John Overdeck of Two Sigma Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action regarding Wingstop Inc (NASDAQ:WING).
What have hedge funds been doing with Wingstop Inc (NASDAQ:WING)?
At Q3’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WING over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in Wingstop Inc (NASDAQ:WING) was held by Renaissance Technologies, which reported holding $121.4 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $36.8 million position. Other investors bullish on the company included Two Sigma Advisors, Balyasny Asset Management, and Armistice Capital. In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to Wingstop Inc (NASDAQ:WING), around 0.86% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.47 percent of its 13F equity portfolio to WING.
Due to the fact that Wingstop Inc (NASDAQ:WING) has experienced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds who sold off their full holdings in the third quarter. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $1.8 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund dropped about $1.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 1 funds in the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Wingstop Inc (NASDAQ:WING). These stocks are Spectrum Brands Holdings, Inc. (NYSE:SPB), California Water Service Group (NYSE:CWT), Allegheny Technologies Incorporated (NYSE:ATI), and Immunomedics, Inc. (NASDAQ:IMMU). This group of stocks’ market values resemble WING’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SPB | 34 | 784958 | 10 |
| CWT | 15 | 52003 | 3 |
| ATI | 20 | 155971 | -1 |
| IMMU | 20 | 537294 | -1 |
| Average | 22.25 | 382557 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $301 million in WING’s case. Spectrum Brands Holdings, Inc. (NYSE:SPB) is the most popular stock in this table. On the other hand California Water Service Group (NYSE:CWT) is the least popular one with only 15 bullish hedge fund positions. Wingstop Inc (NASDAQ:WING) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WING wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WING were disappointed as the stock returned -8.2% during the fourth quarter (through the end of November) 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.
Disclosure: None. This article was originally published at Insider Monkey.
