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Did Hedge Funds Make The Right Call On Washington Federal Inc. (WAFD) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Washington Federal Inc. (NASDAQ:WAFD) based on that data and determine whether they were really smart about the stock.

Is Washington Federal Inc. (NASDAQ:WAFD) a buy, sell, or hold? Investors who are in the know were taking a pessimistic view. The number of long hedge fund bets were cut by 1 recently. Our calculations also showed that WAFD 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). WAFD was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. There were 19 hedge funds in our database with WAFD positions at the end of the previous quarter.

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.

Steven Cohen

Steven Cohen of Point72 Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s check out the latest hedge fund action surrounding Washington Federal Inc. (NASDAQ:WAFD).

How have hedgies been trading Washington Federal Inc. (NASDAQ:WAFD)?

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WAFD over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

The largest stake in Washington Federal Inc. (NASDAQ:WAFD) was held by Renaissance Technologies, which reported holding $8.9 million worth of stock at the end of September. It was followed by Marshall Wace LLP with a $6.7 million position. Other investors bullish on the company included Arrowstreet Capital, Millennium Management, and D E Shaw. In terms of the portfolio weights assigned to each position Tudor Investment Corp allocated the biggest weight to Washington Federal Inc. (NASDAQ:WAFD), around 0.12% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.09 percent of its 13F equity portfolio to WAFD.

Since Washington Federal Inc. (NASDAQ:WAFD) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of funds who sold off their positions entirely last quarter. Intriguingly, Noam Gottesman’s GLG Partners sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising about $5.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund said goodbye to about $1.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Washington Federal Inc. (NASDAQ:WAFD) but similarly valued. We will take a look at Fabrinet (NYSE:FN), Select Medical Holdings Corporation (NYSE:SEM), TC Pipelines, LP (NYSE:TCP), and Associated Banc Corp (NYSE:ASB). All of these stocks’ market caps resemble WAFD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FN 22 132983 -3
SEM 18 106537 -3
TCP 2 9665 -1
ASB 16 124559 -8
Average 14.5 93436 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $43 million in WAFD’s case. Fabrinet (NYSE:FN) is the most popular stock in this table. On the other hand TC Pipelines, LP (NYSE:TCP) is the least popular one with only 2 bullish hedge fund positions. Washington Federal Inc. (NASDAQ:WAFD) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately WAFD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WAFD were disappointed as the stock returned -9.8% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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