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Hedge Funds Are Dumping WESCO International, Inc. (WCC)

Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like WESCO International, Inc. (NYSE:WCC).

WESCO International, Inc. (NYSE:WCC) has experienced a decrease in enthusiasm from smart money of late. Our calculations also showed that WCC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are dozens of gauges market participants use to value stocks. A couple of the most under-the-radar gauges are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the top picks of the elite money managers can beat the market by a very impressive amount (see the details here).

WCC_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the recent hedge fund action surrounding WESCO International, Inc. (NYSE:WCC).

What does smart money think about WESCO International, Inc. (NYSE:WCC)?

At Q2’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from the first quarter of 2019. By comparison, 26 hedge funds held shares or bullish call options in WCC a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Clint Carlson, Carlson Capital

More specifically, Blue Harbour Group was the largest shareholder of WESCO International, Inc. (NYSE:WCC), with a stake worth $202.1 million reported as of the end of March. Trailing Blue Harbour Group was AQR Capital Management, which amassed a stake valued at $94.6 million. Polaris Capital Management, D E Shaw, and Carlson Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Because WESCO International, Inc. (NYSE:WCC) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there was a specific group of money managers that slashed their entire stakes in the second quarter. Intriguingly, Sara Nainzadeh’s Centenus Global Management dropped the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at about $3.7 million in stock. David Costen Haley’s fund, HBK Investments, also cut its stock, about $3.4 million worth. These moves are important to note, as total hedge fund interest dropped by 8 funds in the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. These stocks are Insmed Incorporated (NASDAQ:INSM), Korn Ferry (NYSE:KFY), Worthington Industries, Inc. (NYSE:WOR), and PQ Group Holdings Inc. (NYSE:PQG). This group of stocks’ market valuations resemble WCC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INSM 23 596261 5
KFY 22 134563 1
WOR 13 61991 -4
PQG 6 55623 0
Average 16 212110 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $474 million in WCC’s case. Insmed Incorporated (NASDAQ:INSM) is the most popular stock in this table. On the other hand PQ Group Holdings Inc. (NYSE:PQG) is the least popular one with only 6 bullish hedge fund positions. WESCO International, Inc. (NYSE:WCC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WCC were disappointed as the stock returned -5.7% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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