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Did Hedge Funds Make The Right Call On Western Alliance Bancorporation (WAL) ?

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 thoughtWestern Alliance Bancorporation (NYSE:WAL) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is Western Alliance Bancorporation (NYSE:WAL) going to take off soon? Investors who are in the know were in a bearish mood. The number of bullish hedge fund positions dropped by 5 recently. Our calculations also showed that WAL 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). WAL was in 27 hedge funds’ portfolios at the end of March. There were 32 hedge funds in our database with WAL holdings at the end of the previous quarter.

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

In the 21st century investor’s toolkit there are numerous gauges stock market investors can use to grade their stock investments. A duo of the less utilized gauges are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the top investment managers can outperform their index-focused peers by a superb margin (see the details here).

Fred Cummings of Elizabeth Park Capital

Fred Cummings of Elizabeth Park Capital

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. Keeping this in mind we’re going to take a peek at the recent hedge fund action regarding Western Alliance Bancorporation (NYSE:WAL).

How have hedgies been trading Western Alliance Bancorporation (NYSE:WAL)?

Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the fourth quarter of 2019. By comparison, 28 hedge funds held shares or bullish call options in WAL a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Western Alliance Bancorporation (NYSE:WAL), worth close to $34.2 million, amounting to less than 0.1%% of its total 13F portfolio. On Citadel Investment Group’s heels is Adage Capital Management, managed by Phill Gross and Robert Atchinson, which holds a $18.2 million position; 0.1% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions include Cliff Asness’s AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Daniel Johnson’s Gillson Capital. In terms of the portfolio weights assigned to each position Elizabeth Park Capital Management allocated the biggest weight to Western Alliance Bancorporation (NYSE:WAL), around 2.7% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, dishing out 2.51 percent of its 13F equity portfolio to WAL.

Due to the fact that Western Alliance Bancorporation (NYSE:WAL) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that elected to cut their entire stakes last quarter. It’s worth mentioning that Ravi Chopra’s Azora Capital said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, valued at close to $15.3 million in stock, and Usman Waheed’s Strycker View Capital was right behind this move, as the fund dumped about $14.9 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Western Alliance Bancorporation (NYSE:WAL) but similarly valued. These stocks are Darling Ingredients Inc. (NYSE:DAR), Glacier Bancorp, Inc. (NASDAQ:GBCI), ALLETE Inc (NYSE:ALE), and Flowserve Corporation (NYSE:FLS). This group of stocks’ market caps are closest to WAL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DAR 25 255260 9
GBCI 12 36299 -1
ALE 18 147349 -7
FLS 29 181471 3
Average 21 155095 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $155 million. That figure was $137 million in WAL’s case. Flowserve Corporation (NYSE:FLS) is the most popular stock in this table. On the other hand Glacier Bancorp, Inc. (NASDAQ:GBCI) is the least popular one with only 12 bullish hedge fund positions. Western Alliance Bancorporation (NYSE:WAL) 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 WAL, though not to the same extent, as the stock returned 24.8% during the second quarter and outperformed the market as well.

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