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Did Hedge Funds Make The Right Call On Woodward Inc (WWD) ?

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 Woodward Inc (NASDAQ:WWD) and determine whether the smart money was really smart about this stock.

Woodward Inc (NASDAQ:WWD) has seen an increase in enthusiasm from smart money in recent months. WWD was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with WWD holdings at the end of the previous quarter. Our calculations also showed that WWD 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.

NAVELLIER & ASSOCIATES

Louis Navellier of Navellier & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind we’re going to analyze the recent hedge fund action regarding Woodward Inc (NASDAQ:WWD).

How are hedge funds trading Woodward Inc (NASDAQ:WWD)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 9% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in WWD a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WWD A Good Stock To Buy?

The largest stake in Woodward Inc (NASDAQ:WWD) was held by Eagle Capital Management, which reported holding $90.4 million worth of stock at the end of September. It was followed by AQR Capital Management with a $28.3 million position. Other investors bullish on the company included Citadel Investment Group, Royce & Associates, and Millennium Management. In terms of the portfolio weights assigned to each position Fort Baker Capital Management allocated the biggest weight to Woodward Inc (NASDAQ:WWD), around 3.71% of its 13F portfolio. Taconic Capital is also relatively very bullish on the stock, dishing out 0.53 percent of its 13F equity portfolio to WWD.

As industrywide interest jumped, key money managers were breaking ground themselves. Eagle Capital Management, managed by Boykin Curry, initiated the largest position in Woodward Inc (NASDAQ:WWD). Eagle Capital Management had $90.4 million invested in the company at the end of the quarter. Steve Pigott’s Fort Baker Capital Management also initiated a $5.6 million position during the quarter. The other funds with brand new WWD positions are Frank Brosens’s Taconic Capital, Greg Eisner’s Engineers Gate Manager, and Bruce Kovner’s Caxton Associates LP.

Let’s now take a look at hedge fund activity in other stocks similar to Woodward Inc (NASDAQ:WWD). These stocks are OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), Eaton Vance Corp (NYSE:EV), Wright Medical Group N.V. (NASDAQ:WMGI), and Jefferies Financial Group Inc. (NYSE:JEF). This group of stocks’ market values are similar to WWD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OCFT 3 1431 -6
EV 20 37006 -4
WMGI 37 877799 -9
JEF 30 401708 -1
Average 22.5 329486 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $329 million. That figure was $222 million in WWD’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 3 bullish hedge fund positions. Woodward Inc (NASDAQ:WWD) 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 WWD as the stock returned 30.7% 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.