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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Western Alliance Bancorporation (NYSE:WAL).
Is Western Alliance Bancorporation (NYSE:WAL) ready to rally soon? Hedge funds are buying. The number of bullish hedge fund bets advanced by 3 in recent months. Our calculations also showed that WAL 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). WAL was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 29 hedge funds in our database with WAL positions at the end of the previous quarter.
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.
Dmitry Balyasny of Balyasny Asset Management
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 let’s take a peek at the latest hedge fund action surrounding Western Alliance Bancorporation (NYSE:WAL).
What does smart money think about Western Alliance Bancorporation (NYSE:WAL)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. By comparison, 28 hedge funds held shares or bullish call options in WAL a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
Among these funds, Citadel Investment Group held the most valuable stake in Western Alliance Bancorporation (NYSE:WAL), which was worth $63.6 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $34.5 million worth of shares. Millennium Management, Castine Capital Management, and Azora Capital 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 Strycker View Capital allocated the biggest weight to Western Alliance Bancorporation (NYSE:WAL), around 7.06% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, dishing out 4.65 percent of its 13F equity portfolio to WAL.
Consequently, key money managers were leading the bulls’ herd. Azora Capital, managed by Ravi Chopra, initiated the most valuable position in Western Alliance Bancorporation (NYSE:WAL). Azora Capital had $15.3 million invested in the company at the end of the quarter. Usman Waheed’s Strycker View Capital also initiated a $14.9 million position during the quarter. The other funds with brand new WAL positions are Dmitry Balyasny’s Balyasny Asset Management, Cliff Asness’s AQR Capital Management, and Minhua Zhang’s Weld Capital Management.
Let’s now review hedge fund activity in other stocks similar to Western Alliance Bancorporation (NYSE:WAL). These stocks are AGCO Corporation (NYSE:AGCO), Hudson Pacific Properties Inc (NYSE:HPP), Haemonetics Corporation (NYSE:HAE), and Stericycle Inc (NASDAQ:SRCL). All of these stocks’ market caps match WAL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGCO | 28 | 302528 | 1 |
| HPP | 19 | 276484 | -8 |
| HAE | 33 | 596381 | 8 |
| SRCL | 24 | 832122 | 4 |
| Average | 26 | 501879 | 1.25 |
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 $502 million. That figure was $246 million in WAL’s case. Haemonetics Corporation (NYSE:HAE) is the most popular stock in this table. On the other hand Hudson Pacific Properties Inc (NYSE:HPP) is the least popular one with only 19 bullish hedge fund positions. Western Alliance Bancorporation (NYSE:WAL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately WAL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WAL were disappointed as the stock returned -49% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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.
