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 The Western Union Company (NYSE:WU)? The smart money sentiment can provide an answer to this question.
The Western Union Company (NYSE:WU) has seen an increase in activity from the world’s largest hedge funds of late. WU was in 29 hedge funds’ portfolios at the end of December. There were 23 hedge funds in our database with WU positions at the end of the previous quarter. Our calculations also showed that WU 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.
In the financial world there are numerous formulas shareholders use to grade publicly traded companies. A couple of the most innovative formulas are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can outperform the broader indices by a very impressive margin (see the details here).
Jim Simons of Renaissance Technologies
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 analyze the recent hedge fund action encompassing The Western Union Company (NYSE:WU).
Hedge fund activity in The Western Union Company (NYSE:WU)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WU over the last 18 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, Renaissance Technologies was the largest shareholder of The Western Union Company (NYSE:WU), with a stake worth $83.7 million reported as of the end of September. Trailing Renaissance Technologies was Polaris Capital Management, which amassed a stake valued at $59.5 million. Two Sigma Advisors, D E Shaw, and Ariel Investments 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 Polaris Capital Management allocated the biggest weight to The Western Union Company (NYSE:WU), around 2.45% of its 13F portfolio. International Value Advisers is also relatively very bullish on the stock, dishing out 1.41 percent of its 13F equity portfolio to WU.
As one would reasonably expect, specific money managers were breaking ground themselves. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in The Western Union Company (NYSE:WU). Citadel Investment Group had $2.9 million invested in the company at the end of the quarter. Qing Li’s Sciencast Management also initiated a $2.5 million position during the quarter. The other funds with new positions in the stock are Nathan Przybylo’s L2 Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Roy Vermus and Shlomi Bracha’s Noked Capital.
Let’s now review hedge fund activity in other stocks similar to The Western Union Company (NYSE:WU). These stocks are Jack Henry & Associates, Inc. (NASDAQ:JKHY), Vistra Energy Corp. (NYSE:VST), Datadog, Inc. (NASDAQ:DDOG), and West Pharmaceutical Services Inc. (NYSE:WST). This group of stocks’ market valuations are similar to WU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JKHY | 29 | 259780 | 8 |
| VST | 49 | 2192176 | 4 |
| DDOG | 32 | 439020 | -7 |
| WST | 29 | 428409 | -5 |
| Average | 34.75 | 829846 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $830 million. That figure was $395 million in WU’s case. Vistra Energy Corp. (NYSE:VST) is the most popular stock in this table. On the other hand Jack Henry & Associates, Inc. (NASDAQ:JKHY) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks The Western Union Company (NYSE:WU) is even less popular than JKHY. Hedge funds clearly dropped the ball on WU as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on WU as the stock returned -21.4% during the same time period and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
