Hedge Funds Are Still Plowing Into Waddell & Reed Financial, Inc. (WDR)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Waddell & Reed Financial, Inc. (NYSE:WDR) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Waddell & Reed Financial, Inc. (NYSE:WDR) has experienced an increase in support from the world’s most elite money managers lately. Waddell & Reed Financial, Inc. (NYSE:WDR) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistics is 22. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 22 hedge funds in our database with WDR positions at the end of the first quarter. Our calculations also showed that WDR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Chuck Royce of Royce & 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s take a gander at the recent hedge fund action encompassing Waddell & Reed Financial, Inc. (NYSE:WDR).

How are hedge funds trading Waddell & Reed Financial, Inc. (NYSE:WDR)?

At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WDR over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WDR A Good Stock To Buy?

The largest stake in Waddell & Reed Financial, Inc. (NYSE:WDR) was held by GAMCO Investors, which reported holding $20.8 million worth of stock at the end of September. It was followed by Fisher Asset Management with a $20.8 million position. Other investors bullish on the company included GMT Capital, Arrowstreet Capital, and Royce & Associates. In terms of the portfolio weights assigned to each position Factorial Partners allocated the biggest weight to Waddell & Reed Financial, Inc. (NYSE:WDR), around 1.4% of its 13F portfolio. GMT Capital is also relatively very bullish on the stock, setting aside 0.79 percent of its 13F equity portfolio to WDR.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Waddell & Reed Financial, Inc. (NYSE:WDR) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in Waddell & Reed Financial, Inc. (NYSE:WDR). Marshall Wace LLP had $4.4 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1.7 million investment in the stock during the quarter. The other funds with brand new WDR positions are Parvinder Thiara’s Athanor Capital, Donald Sussman’s Paloma Partners, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s go over hedge fund activity in other stocks similar to Waddell & Reed Financial, Inc. (NYSE:WDR). These stocks are Kontoor Brands, Inc. (NASDAQ:KTB), Huron Consulting Group (NASDAQ:HURN), EnPro Industries, Inc. (NYSE:NPO), CSW Industrials, Inc. (NASDAQ:CSWI), First Busey Corporation (NASDAQ:BUSE), Oric Pharmaceuticals, Inc. (NASDAQ:ORIC), and Enanta Pharmaceuticals Inc (NASDAQ:ENTA). This group of stocks’ market values resemble WDR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KTB 18 64195 2
HURN 11 36397 -6
NPO 17 131944 3
CSWI 19 29123 3
BUSE 13 36069 2
ORIC 11 234522 11
ENTA 20 189133 2
Average 15.6 103055 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.6 hedge funds with bullish positions and the average amount invested in these stocks was $103 million. That figure was $118 million in WDR’s case. Enanta Pharmaceuticals Inc (NASDAQ:ENTA) is the most popular stock in this table. On the other hand Huron Consulting Group (NASDAQ:HURN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Waddell & Reed Financial, Inc. (NYSE:WDR) is more popular among hedge funds. Our overall hedge fund sentiment score for WDR is 88. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately WDR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WDR were disappointed as the stock returned -6.5% since the end of 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.