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Hedge Funds Have Never Been This Bullish On Wayfair Inc (W)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. Stocks kept going up since then. In this article we look at how hedge funds traded Wayfair Inc (NYSE:W) and determine whether the smart money was really smart about this stock.

Is Wayfair Inc (NYSE:W) a healthy stock for your portfolio? Money managers were turning bullish. The number of bullish hedge fund bets increased by 7 lately. Wayfair Inc (NYSE:W) was in 41 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that W 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.

In today’s marketplace there are several methods investors use to value publicly traded companies. A pair of the less known methods are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top investment managers can outclass their index-focused peers by a significant margin (see the details here).

Wil Harkey Nantahala Capital

Wilmot B. Harkey of Nantahala Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. 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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind we’re going to take a look at the new hedge fund action encompassing Wayfair Inc (NYSE:W).

What have hedge funds been doing with Wayfair Inc (NYSE:W)?

Heading into the third quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 21% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards W over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Spruce House Investment Management held the most valuable stake in Wayfair Inc (NYSE:W), which was worth $1432.7 million at the end of the third quarter. On the second spot was Bares Capital Management which amassed $590.9 million worth of shares. D E Shaw, Whale Rock Capital Management, and Nantahala Capital Management 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 Spruce House Investment Management allocated the biggest weight to Wayfair Inc (NYSE:W), around 19.21% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, earmarking 14.58 percent of its 13F equity portfolio to W.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Adage Capital Management, managed by Phill Gross and Robert Atchinson, established the most outsized position in Wayfair Inc (NYSE:W). Adage Capital Management had $189.7 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $109.5 million position during the quarter. The other funds with brand new W positions are Jonathan Auerbach’s Hound Partners, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Wayfair Inc (NYSE:W) but similarly valued. These stocks are Garmin Ltd. (NASDAQ:GRMN), Coupa Software Incorporated (NASDAQ:COUP), The Royal Bank of Scotland Group plc (NYSE:RBS), Arthur J. Gallagher & Co. (NYSE:AJG), Ameriprise Financial, Inc. (NYSE:AMP), MPLX LP (NYSE:MPLX), and Nutrien Ltd. (NYSE:NTR). This group of stocks’ market valuations are closest to W’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GRMN 23 398083 -4
COUP 50 3002984 -16
RBS 5 5012 0
AJG 29 234663 1
AMP 28 707002 2
MPLX 13 179753 2
NTR 22 490722 0
Average 24.3 716888 -2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $717 million. That figure was $3534 million in W’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand The Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. Wayfair Inc (NYSE:W) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for W is 80. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on W as the stock returned 50.1% since Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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