Were Hedge Funds Right About Northwest Bancshares (NWBI)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is Northwest Bancshares, Inc. (NASDAQ:NWBI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Northwest Bancshares, Inc. (NASDAQ:NWBI) an attractive investment now? Prominent investors are getting less optimistic. The number of long hedge fund bets shrunk by 1 in recent months. Our calculations also showed that NWBI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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 let’s view the latest hedge fund action surrounding Northwest Bancshares, Inc. (NASDAQ:NWBI).

Hedge fund activity in Northwest Bancshares, Inc. (NASDAQ:NWBI)

At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the third quarter of 2019. On the other hand, there were a total of 9 hedge funds with a bullish position in NWBI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies has the number one position in Northwest Bancshares, Inc. (NASDAQ:NWBI), worth close to $20.7 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by Paul Marshall and Ian Wace of Marshall Wace LLP, with a $13.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Dmitry Balyasny’s Balyasny Asset Management, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Minerva Advisors allocated the biggest weight to Northwest Bancshares, Inc. (NASDAQ:NWBI), around 0.54% of its 13F portfolio. Marshall Wace LLP is also relatively very bullish on the stock, designating 0.09 percent of its 13F equity portfolio to NWBI.

Since Northwest Bancshares, Inc. (NASDAQ:NWBI) has experienced falling interest from hedge fund managers, logic holds that there exists a select few money managers that elected to cut their entire stakes in the third quarter. At the top of the heap, David Harding’s Winton Capital Management said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling close to $0.5 million in stock, and Bruce Kovner’s Caxton Associates LP was right behind this move, as the fund cut about $0.4 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 1 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Northwest Bancshares, Inc. (NASDAQ:NWBI) but similarly valued. We will take a look at American Woodmark Corporation (NASDAQ:AMWD), BrightView Holdings, Inc. (NYSE:BV), Tellurian Inc. (NASDAQ:TELL), and Kaiser Aluminum Corp. (NASDAQ:KALU). This group of stocks’ market valuations resemble NWBI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $118 million. That figure was $67 million in NWBI’s case. American Woodmark Corporation (NASDAQ:AMWD) is the most popular stock in this table. On the other hand BrightView Holdings, Inc. (NYSE:BV) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Northwest Bancshares, Inc. (NASDAQ:NWBI) is more popular among hedge funds. 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 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately NWBI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NWBI were disappointed as the stock returned -31.7% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.

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.