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 (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. Keeping this in mind, let’s take a look at whether Westpac Banking Corporation (NYSE:WBK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Westpac Banking Corporation (NYSE:WBK) was in 7 hedge funds’ portfolios at the end of December. WBK has seen an increase in support from the world’s most elite money managers of late. There were 4 hedge funds in our database with WBK holdings at the end of the previous quarter. Our calculations also showed that WBK 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. 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. 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. With all of this in mind let’s take a glance at the new hedge fund action surrounding Westpac Banking Corporation (NYSE:WBK).
What does smart money think about Westpac Banking Corporation (NYSE:WBK)?
Heading into the first quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 75% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WBK over the last 18 quarters. So, let’s see 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 Westpac Banking Corporation (NYSE:WBK), with a stake worth $40.8 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $4.4 million. Citadel Investment Group, Two Sigma Advisors, and Point72 Asset Management 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 Renaissance Technologies allocated the biggest weight to Westpac Banking Corporation (NYSE:WBK), around 0.03% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to WBK.
With a general bullishness amongst the heavyweights, some big names have jumped into Westpac Banking Corporation (NYSE:WBK) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, created the most valuable position in Westpac Banking Corporation (NYSE:WBK). Two Sigma Advisors had $0.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $0.8 million investment in the stock during the quarter. The only other fund with a brand new WBK position is Donald Sussman’s Paloma Partners.
Let’s also examine hedge fund activity in other stocks similar to Westpac Banking Corporation (NYSE:WBK). These stocks are Crown Castle International Corp. (NYSE:CCI), Colgate-Palmolive Company (NYSE:CL), Northrop Grumman Corporation (NYSE:NOC), and Lloyds Banking Group PLC (NYSE:LYG). This group of stocks’ market values resemble WBK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCI | 38 | 1723851 | -3 |
| CL | 52 | 2086840 | 7 |
| NOC | 44 | 1320442 | -2 |
| LYG | 5 | 66676 | -3 |
| Average | 34.75 | 1299452 | -0.25 |
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 $1299 million. That figure was $49 million in WBK’s case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Westpac Banking Corporation (NYSE:WBK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately WBK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WBK investors were disappointed as the stock returned -42.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.
