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2019 Review: Top Hedge Fund Stocks vs. WestRock Company (WRK)

It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned 31.2% in 2019. Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 41.3% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like WestRock Company (NYSE:WRK).

WestRock Company (NYSE:WRK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds’ portfolios at the end of September. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Targa Resources Corp (NYSE:TRGP), Iron Mountain Incorporated (NYSE:IRM), and FactSet Research Systems Inc. (NYSE:FDS) to gather more data points. Our calculations also showed that WRK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 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 has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GOTHAM ASSET MANAGEMENT

Joel Greenblatt of Gotham Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind let’s check out the key hedge fund action regarding WestRock Company (NYSE:WRK).

What have hedge funds been doing with WestRock Company (NYSE:WRK)?

Heading into the fourth quarter of 2019, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WRK over the last 17 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in WestRock Company (NYSE:WRK), which was worth $149.9 million at the end of the third quarter. On the second spot was Millennium Management which amassed $137.2 million worth of shares. Impax Asset Management, Lakewood Capital Management, and D E Shaw 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 Lakewood Capital Management allocated the biggest weight to WestRock Company (NYSE:WRK), around 2.69% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 1.38 percent of its 13F equity portfolio to WRK.

Since WestRock Company (NYSE:WRK) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who were dropping their full holdings last quarter. Interestingly, Thomas E. Claugus’s GMT Capital said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $10.7 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its stock, about $3.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as WestRock Company (NYSE:WRK) but similarly valued. These stocks are Targa Resources Corp (NYSE:TRGP), Iron Mountain Incorporated (NYSE:IRM), FactSet Research Systems Inc. (NYSE:FDS), and National Retail Properties, Inc. (NYSE:NNN). This group of stocks’ market valuations resemble WRK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRGP 16 241333 -2
IRM 14 58210 0
FDS 19 262033 0
NNN 20 275561 4
Average 17.25 209284 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $606 million in WRK’s case. National Retail Properties, Inc. (NYSE:NNN) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks WestRock Company (NYSE:WRK) 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. Unfortunately WRK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WRK were disappointed as the stock returned 19.3% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
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.

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