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Did Hedge Funds Drop The Ball On Wageworks Inc (WAGE) ?

A market correction in the fourth quarter, spurred by a number of global macroeconomic concerns and rising interest rates ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by nearly 7 percentage points during the fourth quarter. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Wageworks Inc (NYSE:WAGE) during the quarter.

Is Wageworks Inc (NYSE:WAGE) a healthy stock for your portfolio? Money managers are taking an optimistic view. The number of long hedge fund bets inched up by 1 lately. Our calculations also showed that WAGE isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BlueMountain Capital Management's Returns, AUM and Holdings

Let’s review the latest hedge fund action regarding Wageworks Inc (NYSE:WAGE).

What does the smart money think about Wageworks Inc (NYSE:WAGE)?

Heading into the first quarter of 2019, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in WAGE a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WAGE_apr2019

More specifically, Renaissance Technologies was the largest shareholder of Wageworks Inc (NYSE:WAGE), with a stake worth $17.3 million reported as of the end of December. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $14.8 million. D E Shaw, Simcoe Capital Management, and Two Sigma Advisors were also very fond of the stock, giving the stock large weights in their portfolios.

Now, key hedge funds were leading the bulls’ herd. Simcoe Capital Management, managed by Jeffrey Jacobowitz, created the biggest position in Wageworks Inc (NYSE:WAGE). Simcoe Capital Management had $10.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $6.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Minhua Zhang’s Weld Capital Management and Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital.

Let’s check out hedge fund activity in other stocks similar to Wageworks Inc (NYSE:WAGE). These stocks are FB Financial Corporation (NYSE:FBK), Dril-Quip, Inc. (NYSE:DRQ), Uniqure NV (NASDAQ:QURE), and Presidio, Inc. (NASDAQ:PSDO). All of these stocks’ market caps resemble WAGE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBK 8 115538 -2
DRQ 19 127024 1
QURE 17 279693 -2
PSDO 6 4900 -8
Average 12.5 131789 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $84 million in WAGE’s case. Dril-Quip, Inc. (NYSE:DRQ) is the most popular stock in this table. On the other hand Presidio, Inc. (NASDAQ:PSDO) is the least popular one with only 6 bullish hedge fund positions. Wageworks Inc (NYSE:WAGE) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on WAGE as the stock returned 54.2% and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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

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