Did Hedge Funds Make The Right Call On WNS (Holdings) Limited (WNS) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of WNS (Holdings) Limited (NYSE:WNS) based on that data and determine whether they were really smart about the stock.

WNS (Holdings) Limited (NYSE:WNS) was in 17 hedge funds’ portfolios at the end of March. WNS investors should be aware of a decrease in enthusiasm from smart money lately. There were 20 hedge funds in our database with WNS holdings at the end of the previous quarter. Our calculations also showed that WNS 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Now let’s go over the latest hedge fund action surrounding WNS (Holdings) Limited (NYSE:WNS).

How have hedgies been trading WNS (Holdings) Limited (NYSE:WNS)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in WNS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of WNS (Holdings) Limited (NYSE:WNS), with a stake worth $71.6 million reported as of the end of September. Trailing Renaissance Technologies was Diamond Hill Capital, which amassed a stake valued at $34.7 million. Arrowstreet Capital, Millennium Management, and Fisher Asset 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 Sensato Capital Management allocated the biggest weight to WNS (Holdings) Limited (NYSE:WNS), around 6.75% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, dishing out 3.17 percent of its 13F equity portfolio to WNS.

Since WNS (Holdings) Limited (NYSE:WNS) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies that elected to cut their positions entirely in the first quarter. At the top of the heap, Paul Marshall and Ian Wace’s Marshall Wace LLP dropped the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $12.6 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund dropped about $1.8 million worth. These transactions are interesting, as total hedge fund interest dropped by 3 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as WNS (Holdings) Limited (NYSE:WNS) but similarly valued. These stocks are Kodiak Sciences Inc (NASDAQ:KOD), Barnes Group Inc. (NYSE:B), Box, Inc. (NYSE:BOX), and Cal-Maine Foods Inc (NASDAQ:CALM). This group of stocks’ market caps are closest to WNS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KOD 12 770396 1
B 11 14286 0
BOX 34 487198 -1
CALM 26 219068 11
Average 20.75 372737 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $185 million in WNS’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 11 bullish hedge fund positions. WNS (Holdings) Limited (NYSE:WNS) is not the least popular stock in this group but hedge fund interest is still below 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on WNS as the stock returned 42.9% since the end of March and outperformed the market by an even larger margin.

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