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Did Hedge Funds Make The Right Call On Watts Water Technologies Inc (WTS) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtWatts Water Technologies Inc (NYSE:WTS) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Watts Water Technologies Inc (NYSE:WTS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 19 hedge funds’ portfolios at the end of March. At the end of this article we will also compare WTS to other stocks including Avista Corp (NYSE:AVA), Hamilton Lane Incorporated (NASDAQ:HLNE), and Companhia Paranaense de Energia – COPEL (NYSE:ELP) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Lee Ainslie MAVERICK CAPITAL

Lee Ainslie of Maverick Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to analyze the fresh hedge fund action surrounding Watts Water Technologies Inc (NYSE:WTS).

How are hedge funds trading Watts Water Technologies Inc (NYSE:WTS)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WTS over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Impax Asset Management held the most valuable stake in Watts Water Technologies Inc (NYSE:WTS), which was worth $85.8 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $80 million worth of shares. Renaissance Technologies, GLG Partners, and Royce & Associates 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 Impax Asset Management allocated the biggest weight to Watts Water Technologies Inc (NYSE:WTS), around 1.14% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, designating 0.94 percent of its 13F equity portfolio to WTS.

Since Watts Water Technologies Inc (NYSE:WTS) has faced bearish sentiment from the smart money, it’s easy to see that there were a few fund managers who were dropping their positions entirely in the first quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital said goodbye to the largest position of the 750 funds tracked by Insider Monkey, comprising about $10.5 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund dumped about $0.9 million worth. These moves 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 take a look at hedge fund activity in other stocks similar to Watts Water Technologies Inc (NYSE:WTS). These stocks are Avista Corp (NYSE:AVA), Hamilton Lane Incorporated (NASDAQ:HLNE), Companhia Paranaense de Energia – COPEL (NYSE:ELP), and Envestnet Inc (NYSE:ENV). This group of stocks’ market valuations resemble WTS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AVA 18 145437 3
HLNE 9 68042 -1
ELP 7 44533 0
ENV 17 74887 -1
Average 12.75 83225 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $237 million in WTS’s case. Avista Corp (NYSE:AVA) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Watts Water Technologies Inc (NYSE:WTS) is more popular among hedge funds. 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 and still beat the market by 17.1 percentage points. Unfortunately WTS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WTS were disappointed as the stock returned 1.1% since the end of the first quarter 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 most of these stocks already outperformed the market in 2020.

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