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Did Hedge Funds Make The Right Call On West Pharmaceutical Services Inc. (WST)?

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 thoughtWest Pharmaceutical Services Inc. (NYSE:WST) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

West Pharmaceutical Services Inc. (NYSE:WST) was in 27 hedge funds’ portfolios at the end of March. WST investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 29 hedge funds in our database with WST holdings at the end of the previous quarter. Our calculations also showed that WST 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.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

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 take a look at the latest hedge fund action regarding West Pharmaceutical Services Inc. (NYSE:WST).

Hedge fund activity in West Pharmaceutical Services Inc. (NYSE:WST)

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WST over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Fisher Asset Management was the largest shareholder of West Pharmaceutical Services Inc. (NYSE:WST), with a stake worth $98.8 million reported as of the end of September. Trailing Fisher Asset Management was Renaissance Technologies, which amassed a stake valued at $55.6 million. Intermede Investment Partners, AQR Capital Management, and Millennium Management 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 Intermede Investment Partners allocated the biggest weight to West Pharmaceutical Services Inc. (NYSE:WST), around 2.23% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.53 percent of its 13F equity portfolio to WST.

Seeing as West Pharmaceutical Services Inc. (NYSE:WST) has experienced a decline in interest from hedge fund managers, we can see that there was a specific group of hedge funds who were dropping their entire stakes heading into Q4. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the largest stake of all the hedgies watched by Insider Monkey, totaling an estimated $1.6 million in stock. David Andre and Astro Teller’s fund, Cerebellum Capital, also cut its stock, about $0.6 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to West Pharmaceutical Services Inc. (NYSE:WST). We will take a look at Yandex NV (NASDAQ:YNDX), NortonLifeLock Inc. (NASDAQ:NLOK), Expeditors International of Washington, Inc. (NASDAQ:EXPD), and SS&C Technologies Holdings, Inc. (NASDAQ:SSNC). This group of stocks’ market valuations are similar to WST’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YNDX 35 770433 -3
NLOK 42 1352392 -4
EXPD 31 346287 4
SSNC 57 1732077 -2
Average 41.25 1050297 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $1050 million. That figure was $347 million in WST’s case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Expeditors International of Washington, Inc. (NASDAQ:EXPD) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks West Pharmaceutical Services Inc. (NYSE:WST) is even less popular than EXPD. Hedge funds clearly dropped the ball on WST as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on WST as the stock returned 49.3% in the second quarter and outperformed the market by an even larger margin.

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