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Do Hedge Funds Love Wayfair Inc (W)?

It’s a little-known fact that stock performance is not evenly distributed (i.e. you don’t have a 50/50 chance of picking a market-beating stock). In fact, despite the S&P 500 gaining about 5.2% between November 1, 2014 and October 30, 2015, less than 49% of the stocks in the index beat the market during that time. In contrast, the 30 stocks from the index which were the most popular among the investors that we track returned 9.5% during that time and 63% of them beat the market. This shows that while hedge funds get a lot of flak from the mainstream media for their performance, it can be rewarding to follow their moves using the right sets of data. Even then, there is never a foolproof strategy to generating returns, as even the collective wisdom of top hedge funds gets it wrong sometimes, as in the case of some of their top picks from the index like Micron and Anadarko. The data, though, shows that following the collective wisdom of select hedge funds can be a very wise move overall.

Is Wayfair Inc (NYSE:W) a superb investment right now? Prominent investors are taking a bullish view. The number of bullish hedge fund bets went up by 15 lately. W was in 28 hedge funds’ portfolios at the end of the third quarter of 2015. There were 13 hedge funds in our database with W positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as United States Steel Corporation (NYSE:X), Nationstar Mortgage Holdings Inc (NYSE:NSM), and American Axle & Manufact. Holdings, Inc. (NYSE:AXL) to gather more data points.

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At the moment there are a large number of gauges stock traders use to assess their stock investments. A pair of the less utilized gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite investment managers can outclass the S&P 500 by a healthy margin (see the details here).

Now, let’s take a peek at the key action surrounding Wayfair Inc (NYSE:W).

What have hedge funds been doing with Wayfair Inc (NYSE:W)?

At the end of the third quarter, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a surge of 115% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Richard Chilton’s Chilton Investment Company has the largest position in Wayfair Inc (NYSE:W), worth close to $60.6 million, corresponding to 2.2% of its total 13F portfolio. On Chilton Investment Company’s heels is Weatherbie Capital, managed by Matthew A. Weatherbie, which holds a $44.4 million position; 5.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Jacob Gottlieb’s Visium Asset Management, Alex Sacerdote’s Whale Rock Capital Management and Ken Griffin’s Citadel Investment Group.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Chilton Investment Company, managed by Richard Chilton, created the most valuable position in Wayfair Inc (NYSE:W), worth $60.6 million as mentioned before. Alex Sacerdote’s Whale Rock Capital Management also initiated a $24.2 million position during the quarter. The other funds with brand new W positions are David Keidan’s Buckingham Capital Management, Scott McLellan’s Marble Arch Investments, and Steve Cohen’s Point72 Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Wayfair Inc (NYSE:W) but similarly valued. These stocks are United States Steel Corporation (NYSE:X), Nationstar Mortgage Holdings Inc (NYSE:NSM), American Axle & Manufact. Holdings, Inc. (NYSE:AXL), and Paylocity Holding Corp (NASDAQ:PCTY). This group of stocks’ market valuations are similar to W’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
X 25 97151 -4
NSM 22 1282540 0
AXL 19 297821 -3
PCTY 19 88893 8

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 $442 million. That figure was just $357 million in W’s case, not a very good sign. United States Steel Corporation (NYSE:X) is the most popular stock in this table, while American Axle & Manufact. Holdings, Inc. (NYSE:AXL) and Paylocity Holding Corp (NASDAQ:PCTY) are the outsiders with only 19 bullish hedge fund positions. Compared to these stocks Wayfair Inc (NYSE:W) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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