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Hedge Funds Dropped The Ball On WABCO Holdings Inc. (WBC)

“October lived up to its scary reputation—the S&P 500 falling in the month by the largest amount in the last 40 years, the only worse Octobers being ’08 and the Crash of ’87. For perspective, there have been only 5 occasions in those 40 years when the S&P 500 declined by greater than 20% from peak to trough. Other than the ’87 Crash, all were during recessions. There were 17 other instances, over the same time frame, when the market fell by over 10% but less than 20%. Furthermore, this is the 18th correction of 5% or more since the current bull market started in March ’09. Corrections are the norm. They can be healthy as they often undo market complacency—overbought levels—potentially allowing the market to base and move even higher.” This is how Trapeze Asset Management summarized the recent market moves in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.

WABCO Holdings Inc. (NYSE:WBC) was in 14 hedge funds’ portfolios at the end of December. WBC investors should be aware of a decrease in hedge fund interest recently. There were 15 hedge funds in our database with WBC positions at the end of the previous quarter. Our calculations also showed that WBC isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Izzy Englander of MILLENNIUM MANAGEMENT

We’re going to go over the new hedge fund action encompassing WABCO Holdings Inc. (NYSE:WBC).

How are hedge funds trading WABCO Holdings Inc. (NYSE:WBC)?

Heading into the first quarter of 2019, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the second quarter of 2018. By comparison, 20 hedge funds held shares or bullish call options in WBC a year ago. With hedge funds’ capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

WBC_apr2019

When looking at the institutional investors followed by Insider Monkey, Bob Peck and Andy Raab’s FPR Partners has the biggest position in WABCO Holdings Inc. (NYSE:WBC), worth close to $427.6 million, comprising 11.3% of its total 13F portfolio. Coming in second is Anand Parekh of Alyeska Investment Group, with a $30.9 million position; 0.5% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors with similar optimism encompass Richard Scott Greeder’s Broad Bay Capital, Cliff Asness’s AQR Capital Management and Israel Englander’s Millennium Management.

Because WABCO Holdings Inc. (NYSE:WBC) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies that slashed their positions entirely last quarter. Intriguingly, Jim Simons’s Renaissance Technologies dumped the biggest investment of all the hedgies watched by Insider Monkey, totaling close to $32.2 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund said goodbye to about $11.4 million worth. These moves are important to note, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to WABCO Holdings Inc. (NYSE:WBC). We will take a look at CyrusOne Inc (NASDAQ:CONE), Axalta Coating Systems Ltd (NYSE:AXTA), Harley-Davidson, Inc. (NYSE:HOG), and Assurant, Inc. (NYSE:AIZ). This group of stocks’ market values resemble WBC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CONE 14 124203 -10
AXTA 35 1927274 -8
HOG 19 67612 -1
AIZ 31 360841 8
Average 24.75 619983 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $620 million. That figure was $516 million in WBC’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks WABCO Holdings Inc. (NYSE:WBC) is even less popular than CONE. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. A few hedge funds were also right about betting on WBC as the stock returned 22.6% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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