Did Hedge Funds Make The Right Call On WestRock Company (WRK) ?

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 thoughtWestRock Company (NYSE:WRK) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

WestRock Company (NYSE:WRK) has seen a decrease in enthusiasm from smart money lately. WRK was in 26 hedge funds’ portfolios at the end of March. There were 35 hedge funds in our database with WRK positions at the end of the previous quarter. Our calculations also showed that WRK 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

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 check out the key hedge fund action regarding WestRock Company (NYSE:WRK).

What have hedge funds been doing with WestRock Company (NYSE:WRK)?

Heading into the second quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in WRK a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Among these funds, Impax Asset Management held the most valuable stake in WestRock Company (NYSE:WRK), which was worth $90.9 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $79.1 million worth of shares. Lakewood Capital Management, AQR Capital Management, and Marshall Wace LLP 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 Atlantic Investment Management allocated the biggest weight to WestRock Company (NYSE:WRK), around 11.25% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, dishing out 3.53 percent of its 13F equity portfolio to WRK.

Due to the fact that WestRock Company (NYSE:WRK) has experienced bearish sentiment from hedge fund managers, we can see that there exists a select few hedge funds that slashed their positions entirely heading into Q4. Intriguingly, Israel Englander’s Millennium Management dropped the biggest position of the 750 funds watched by Insider Monkey, worth an estimated $69.9 million in stock, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management was right behind this move, as the fund said goodbye to about $10.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 9 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to WestRock Company (NYSE:WRK). These stocks are Cognex Corporation (NASDAQ:CGNX), 58.com Inc (NYSE:WUBA), ICON Public Limited Company (NASDAQ:ICLR), and Ares Management Corp (NYSE:ARES). This group of stocks’ market caps match WRK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CGNX 16 153965 -8
WUBA 21 292533 0
ICLR 21 478396 2
ARES 16 186111 -2
Average 18.5 277751 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $278 million. That figure was $412 million in WRK’s case. 58.com Inc (NYSE:WUBA) is the most popular stock in this table. On the other hand Cognex Corporation (NASDAQ:CGNX) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks WestRock Company (NYSE:WRK) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately WRK wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WRK were disappointed as the stock returned 0.8% during the second 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.

Follow Wrkco Inc. (NYSE:WRK)

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