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 Wintrust Financial Corporation (NASDAQ:WTFC) and determine whether hedge funds had an edge regarding this stock.
Is Wintrust Financial Corporation (NASDAQ:WTFC) the right investment to pursue these days? Money managers were becoming less confident. The number of bullish hedge fund positions were cut by 4 lately. Wintrust Financial Corporation (NASDAQ:WTFC) was in 23 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. Our calculations also showed that WTFC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Donald Sussman of Paloma Partners
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a gander at the new hedge fund action encompassing Wintrust Financial Corporation (NASDAQ:WTFC).
How have hedgies been trading Wintrust Financial Corporation (NASDAQ:WTFC)?
At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the first quarter of 2020. On the other hand, there were a total of 23 hedge funds with a bullish position in WTFC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Fisher Asset Management held the most valuable stake in Wintrust Financial Corporation (NASDAQ:WTFC), which was worth $29.6 million at the end of the third quarter. On the second spot was D E Shaw which amassed $27.3 million worth of shares. Citadel Investment Group, AQR Capital Management, and Arrowstreet 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 Mendon Capital Advisors allocated the biggest weight to Wintrust Financial Corporation (NASDAQ:WTFC), around 1.22% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 0.56 percent of its 13F equity portfolio to WTFC.
Seeing as Wintrust Financial Corporation (NASDAQ:WTFC) has witnessed bearish sentiment from the entirety of the hedge funds we track, we can see that there were a few funds who were dropping their entire stakes by the end of the second quarter. Interestingly, Noam Gottesman’s GLG Partners said goodbye to the largest stake of the 750 funds followed by Insider Monkey, valued at close to $3.9 million in stock. Greg Eisner’s fund, Engineers Gate Manager, also said goodbye to its stock, about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds by the end of the second quarter.
Let’s now take a look at hedge fund activity in other stocks similar to Wintrust Financial Corporation (NASDAQ:WTFC). We will take a look at Trinity Industries, Inc. (NYSE:TRN), Insperity Inc (NYSE:NSP), Taylor Morrison Home Corp (NYSE:TMHC), UMB Financial Corporation (NASDAQ:UMBF), Crocs, Inc. (NASDAQ:CROX), Ovintiv Inc. (NYSE:OVV), and Brookfield Business Partners L.P. (NYSE:BBU). This group of stocks’ market valuations resemble WTFC’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TRN | 25 | 824807 | 7 |
| NSP | 29 | 280537 | 0 |
| TMHC | 33 | 370179 | 5 |
| UMBF | 15 | 69356 | 0 |
| CROX | 37 | 634166 | 12 |
| OVV | 16 | 99529 | -3 |
| BBU | 3 | 1285 | 1 |
| Average | 22.6 | 325694 | 3.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.6 hedge funds with bullish positions and the average amount invested in these stocks was $326 million. That figure was $141 million in WTFC’s case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 3 bullish hedge fund positions. Wintrust Financial Corporation (NASDAQ:WTFC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WTFC is 56. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately WTFC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WTFC were disappointed as the stock returned -7.6% in Q3 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 many of these stocks already outperformed the market so far this year.
Follow Wintrust Financial Corp (NASDAQ:WTFC)
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Disclosure: None. This article was originally published at Insider Monkey.
