Did Hedge Funds Make The Right Call On The Western Union Company (WU) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards The Western Union Company (NYSE:WU) at the end of the first quarter and determine whether the smart money was really smart about this stock.

The Western Union Company (NYSE:WU) investors should be aware of an increase in hedge fund sentiment of late. Our calculations also showed that WU 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to go over the recent hedge fund action encompassing The Western Union Company (NYSE:WU).

How have hedgies been trading The Western Union Company (NYSE:WU)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WU over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WU A Good Stock To Buy?

The largest stake in The Western Union Company (NYSE:WU) was held by International Value Advisers, which reported holding $99.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $38.5 million position. Other investors bullish on the company included Polaris Capital Management, Arrowstreet Capital, and D E Shaw. In terms of the portfolio weights assigned to each position International Value Advisers allocated the biggest weight to The Western Union Company (NYSE:WU), around 6.3% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 1.95 percent of its 13F equity portfolio to WU.

As one would reasonably expect, key money managers were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in The Western Union Company (NYSE:WU). Marshall Wace LLP had $10.4 million invested in the company at the end of the quarter. Thomas E. Claugus’s GMT Capital also initiated a $2.3 million position during the quarter. The other funds with brand new WU positions are Matthew Hulsizer’s PEAK6 Capital Management, Greg Eisner’s Engineers Gate Manager, and Lee Ainslie’s Maverick Capital.

Let’s check out hedge fund activity in other stocks similar to The Western Union Company (NYSE:WU). We will take a look at Monolithic Power Systems, Inc. (NASDAQ:MPWR), Peloton Interactive, Inc. (NASDAQ:PTON), Weibo Corp (NASDAQ:WB), and Huntington Ingalls Industries Inc (NYSE:HII). This group of stocks’ market valuations match WU’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MPWR 23 390299 -4
PTON 36 748425 6
WB 10 182637 -1
HII 21 322441 -1
Average 22.5 410951 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $411 million. That figure was $340 million in WU’s case. Peloton Interactive, Inc. (NASDAQ:PTON) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 10 bullish hedge fund positions. The Western Union Company (NYSE:WU) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on WU, though not to the same extent, as the stock returned 20.5% during the second quarter and outperformed the market as well.

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