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Hedge Fund Favorites vs. The Williams Companies, Inc. (WMB) In 2019

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of The Williams Companies, Inc. (NYSE:WMB) based on that data.

The Williams Companies, Inc. (NYSE:WMB) shareholders have witnessed an increase in support from the world’s most elite money managers of late. WMB was in 36 hedge funds’ portfolios at the end of September. There were 34 hedge funds in our database with WMB positions at the end of the previous quarter. Our calculations also showed that WMB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

We leave no stone unturned when looking for the next great investment idea. For example one of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Now let’s take a look at the recent hedge fund action surrounding The Williams Companies, Inc. (NYSE:WMB).

How are hedge funds trading The Williams Companies, Inc. (NYSE:WMB)?

At the end of the third quarter, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WMB over the last 17 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Glenview Capital held the most valuable stake in The Williams Companies, Inc. (NYSE:WMB), which was worth $181.5 million at the end of the third quarter. On the second spot was Steadfast Capital Management which amassed $76.9 million worth of shares. Millennium Management, Levin Easterly Partners, and Canyon Capital 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 BP Capital allocated the biggest weight to The Williams Companies, Inc. (NYSE:WMB), around 6.49% of its 13F portfolio. Sunriver Management is also relatively very bullish on the stock, designating 4.77 percent of its 13F equity portfolio to WMB.

As one would reasonably expect, key money managers have been driving this bullishness. Levin Easterly Partners, managed by John Murphy, created the most outsized position in The Williams Companies, Inc. (NYSE:WMB). Levin Easterly Partners had $64.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $52.4 million position during the quarter. The other funds with new positions in the stock are David E. Shaw’s D E Shaw, Minhua Zhang’s Weld Capital Management, and Charles Paquelet’s Skylands Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Williams Companies, Inc. (NYSE:WMB) but similarly valued. We will take a look at Southwest Airlines Co. (NYSE:LUV), Electronic Arts Inc. (NASDAQ:EA), Amphenol Corporation (NYSE:APH), and Nutrien Ltd. (NYSE:NTR). This group of stocks’ market caps resemble WMB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LUV 36 3854849 3
EA 64 2089888 5
APH 31 758511 6
NTR 25 174521 3
Average 39 1719442 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 39 hedge funds with bullish positions and the average amount invested in these stocks was $1719 million. That figure was $643 million in WMB’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Nutrien Ltd. (NYSE:NTR) is the least popular one with only 25 bullish hedge fund positions. The Williams Companies, Inc. (NYSE:WMB) 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 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately WMB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WMB investors were disappointed as the stock returned 15.2% in 2019 (as of 12/23) and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 65 percent of these stocks already outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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