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Great Western Bancorp Inc (GWB): Are Hedge Funds Right About This Stock?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Great Western Bancorp Inc (NYSE:GWB) and determine whether hedge funds skillfully traded this stock.

Is Great Western Bancorp Inc (NYSE:GWB) going to take off soon? Prominent investors were getting less bullish. The number of bullish hedge fund bets went down by 7 in recent months. Our calculations also showed that GWB 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). GWB was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. There were 17 hedge funds in our database with GWB positions at the end of the previous quarter.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

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 go over the fresh hedge fund action regarding Great Western Bancorp Inc (NYSE:GWB).

Hedge fund activity in Great Western Bancorp Inc (NYSE:GWB)

At Q1’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -41% from the fourth quarter of 2019. By comparison, 14 hedge funds held shares or bullish call options in GWB a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, AQR Capital Management held the most valuable stake in Great Western Bancorp Inc (NYSE:GWB), which was worth $2.8 million at the end of the third quarter. On the second spot was D E Shaw which amassed $2.2 million worth of shares. Winton Capital Management, Citadel Investment Group, and Holocene Advisors 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 Winton Capital Management allocated the biggest weight to Great Western Bancorp Inc (NYSE:GWB), around 0.05% of its 13F portfolio. Engineers Gate Manager is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to GWB.

Judging by the fact that Great Western Bancorp Inc (NYSE:GWB) has experienced bearish sentiment from the smart money, logic holds that there was a specific group of money managers who sold off their full holdings last quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, comprising an estimated $13 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund cut about $1 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Great Western Bancorp Inc (NYSE:GWB) but similarly valued. We will take a look at FBL Financial Group, Inc. (NYSE:FFG), Apollo Commercial Real Est. Finance Inc (NYSE:ARI), WW International, Inc. (NASDAQ:WW), and Beacon Roofing Supply, Inc. (NASDAQ:BECN). This group of stocks’ market values are closest to GWB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FFG 8 15395 1
ARI 17 41289 1
WW 22 175765 -15
BECN 20 164410 -2
Average 16.75 99215 -3.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $99 million. That figure was $12 million in GWB’s case. WW International, Inc. (NASDAQ:WW) is the most popular stock in this table. On the other hand FBL Financial Group, Inc. (NYSE:FFG) is the least popular one with only 8 bullish hedge fund positions. Great Western Bancorp Inc (NYSE:GWB) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market by 15.5 percentage points. Unfortunately GWB wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GWB investors were disappointed as the stock returned -32% 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.

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