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Did Hedge Funds Make The Right Call On Webster Financial Corporation (WBS) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Webster Financial Corporation (NYSE:WBS) and determine whether the smart money was really smart about this stock.

Webster Financial Corporation (NYSE:WBS) has seen an increase in activity from the world’s largest hedge funds lately. Our calculations also showed that WBS 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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. With all of this in mind let’s review the key hedge fund action surrounding Webster Financial Corporation (NYSE:WBS).

How are hedge funds trading Webster Financial Corporation (NYSE:WBS)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 38% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WBS over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Richard S. Pzena’s Pzena Investment Management has the largest position in Webster Financial Corporation (NYSE:WBS), worth close to $50.1 million, accounting for 0.4% of its total 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $41.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Seth Rosen’s Nitorum Capital, Bernard Horn’s Polaris Capital Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Webster Financial Corporation (NYSE:WBS), around 2.22% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, designating 1.38 percent of its 13F equity portfolio to WBS.

Now, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most outsized position in Webster Financial Corporation (NYSE:WBS). Arrowstreet Capital had $5 million invested in the company at the end of the quarter. Noah Levy and Eugene Dozortsev’s Newtyn Management also initiated a $4 million position during the quarter. The other funds with brand new WBS positions are Greg Eisner’s Engineers Gate Manager, Noam Gottesman’s GLG Partners, and Mika Toikka’s AlphaCrest Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Webster Financial Corporation (NYSE:WBS) but similarly valued. We will take a look at Energizer Holdings, Inc. (NYSE:ENR), EnerSys (NYSE:ENS), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Uniqure NV (NASDAQ:QURE). This group of stocks’ market caps match WBS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENR 21 119723 -1
ENS 16 81264 3
ARNA 36 362670 3
QURE 44 642438 0
Average 29.25 301524 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $223 million in WBS’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand EnerSys (NYSE:ENS) is the least popular one with only 16 bullish hedge fund positions. Webster Financial Corporation (NYSE:WBS) 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 WBS as the stock returned 26.9% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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