Were Hedge Funds Right About Wright Medical Group N.V. (WMGI)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Wright Medical Group N.V. (NASDAQ:WMGI) and determine whether the smart money was really smart about this stock.

Wright Medical Group N.V. (NASDAQ:WMGI) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. WMGI was in 37 hedge funds’ portfolios at the end of the first quarter of 2020. There were 46 hedge funds in our database with WMGI positions at the end of the previous quarter. Our calculations also showed that WMGI isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: 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 S&P 500 ETFs by 58 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 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.

Barry Rosenstein of JANA Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now we’re going to view the new hedge fund action regarding Wright Medical Group N.V. (NASDAQ:WMGI).

How have hedgies been trading Wright Medical Group N.V. (NASDAQ:WMGI)?

At Q1’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in WMGI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Alec Litowitz and Ross Laser’s Magnetar Capital has the largest position in Wright Medical Group N.V. (NASDAQ:WMGI), worth close to $142.9 million, accounting for 3.4% of its total 13F portfolio. The second largest stake is held by Millennium Management, led by Israel Englander, holding a $132.3 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions consist of Carl Tiedemann and Michael Tiedemann’s TIG Advisors, Clint Carlson’s Carlson Capital and Simon Sadler’s Segantii Capital. In terms of the portfolio weights assigned to each position Havens Advisors allocated the biggest weight to Wright Medical Group N.V. (NASDAQ:WMGI), around 8.8% of its 13F portfolio. White Square Capital is also relatively very bullish on the stock, designating 7.88 percent of its 13F equity portfolio to WMGI.

Since Wright Medical Group N.V. (NASDAQ:WMGI) has experienced bearish sentiment from hedge fund managers, logic holds that there is a sect of hedgies who sold off their entire stakes in the first quarter. Intriguingly, Robert Emil Zoellner’s Alpine Associates cut the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $161.5 million in stock. Andrew Kurita’s fund, Kettle Hill Capital Management, also sold off its stock, about $33.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 9 funds in the first quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Wright Medical Group N.V. (NASDAQ:WMGI) but similarly valued. We will take a look at Jefferies Financial Group Inc. (NYSE:JEF), Highwoods Properties Inc (NYSE:HIW), Grand Canyon Education Inc (NASDAQ:LOPE), and ServiceMaster Global Holdings Inc (NYSE:SERV). This group of stocks’ market values are similar to WMGI’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $321 million. That figure was $878 million in WMGI’s case. ServiceMaster Global Holdings Inc (NYSE:SERV) is the most popular stock in this table. On the other hand Highwoods Properties Inc (NYSE:HIW) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Wright Medical Group N.V. (NASDAQ:WMGI) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately WMGI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WMGI were disappointed as the stock returned 3.7% during the second quarter 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.

Disclosure: None. This article was originally published at Insider Monkey.