Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of The Wendy’s Company (NASDAQ:WEN).
Is The Wendy’s Company (NASDAQ:WEN) a buy, sell, or hold? The best stock pickers are taking an optimistic view. The number of long hedge fund bets rose by 3 in recent months. Our calculations also showed that wen isn’t among the 30 most popular stocks among hedge funds. WEN was in 27 hedge funds’ portfolios at the end of the third quarter of 2018. There were 24 hedge funds in our database with WEN holdings at the end of the previous quarter.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s go over the recent hedge fund action regarding The Wendy’s Company (NASDAQ:WEN).
Hedge fund activity in The Wendy’s Company (NASDAQ:WEN)
At Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the second quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in WEN at the beginning of this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Trian Partners, managed by Nelson Peltz, holds the biggest position in The Wendy’s Company (NASDAQ:WEN). Trian Partners has a $542.1 million position in the stock, comprising 5.2% of its 13F portfolio. On Trian Partners’s heels is Eminence Capital, led by Ricky Sandler, holding a $207.1 million position; 3.4% of its 13F portfolio is allocated to the company. Remaining members of the smart money that hold long positions comprise Ken Griffin’s Citadel Investment Group, Israel Englander’s Millennium Management and Murray Stahl’s Horizon Asset Management.
As industrywide interest jumped, specific money managers have jumped into The Wendy’s Company (NASDAQ:WEN) headfirst. Impax Asset Management, managed by Ian Simm, assembled the biggest position in The Wendy’s Company (NASDAQ:WEN). Impax Asset Management had $13.7 million invested in the company at the end of the quarter. Bruce Kovner’s Caxton Associates LP also made a $6 million investment in the stock during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Joel Greenblatt’s Gotham Asset Management, and George Hall’s Clinton Group.
Let’s go over hedge fund activity in other stocks similar to The Wendy’s Company (NASDAQ:WEN). We will take a look at AU Optronics Corp. (NYSE:AUO), Kosmos Energy Ltd (NYSE:KOS), Apple Hospitality REIT Inc (NYSE:APLE), and Companhia de Saneamento Basico (NYSE:SBS). This group of stocks’ market caps resemble WEN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AUO | 10 | 56186 | 4 |
| KOS | 18 | 199526 | 3 |
| APLE | 10 | 94675 | -2 |
| SBS | 11 | 156926 | 1 |
| Average | 12.25 | 126828 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $127 million. That figure was $1.22 billion in WEN’s case. Kosmos Energy Ltd (NYSE:KOS) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks The Wendy’s Company (NASDAQ:WEN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.
