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Hedge Funds Have Never Been This Bullish On Webster Financial Corporation (WBS)

In this article you are going to find out whether hedge funds think Webster Financial Corporation (NYSE:WBS) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Webster Financial Corporation (NYSE:WBS) investors should be aware of an increase in support from the world’s most elite money managers of late. Our calculations also showed that WBS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by 51 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 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to go over the key hedge fund action regarding Webster Financial Corporation (NYSE:WBS).

How are hedge funds trading Webster Financial Corporation (NYSE:WBS)?

At Q1’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 38% from the previous quarter. By comparison, 25 hedge funds held shares or bullish call options in WBS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Pzena Investment Management held the most valuable stake in Webster Financial Corporation (NYSE:WBS), which was worth $50.1 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $41.7 million worth of shares. Nitorum Capital, Polaris Capital Management, and Millennium 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 Nitorum Capital allocated the biggest weight to Webster Financial Corporation (NYSE:WBS), around 2.22% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, dishing out 1.38 percent of its 13F equity portfolio to WBS.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Webster Financial Corporation (NYSE:WBS). Arrowstreet Capital had $5 million invested in the company at the end of the quarter. Noah Levy and Eugene Dozortsev’s Newtyn Management also initiated a $4 million position during the quarter. The other funds with new positions in the stock are Greg Eisner’s Engineers Gate Manager, Noam Gottesman’s GLG Partners, and Mika Toikka’s AlphaCrest Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Webster Financial Corporation (NYSE:WBS) but similarly valued. These stocks are Energizer Holdings, Inc. (NYSE:ENR), EnerSys (NYSE:ENS), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), and Uniqure NV (NASDAQ:QURE). This group of stocks’ market values are similar to WBS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENR 21 119723 -1
ENS 16 81264 3
ARNA 36 362670 3
QURE 44 642438 0
Average 29.25 301524 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $223 million in WBS’s case. Uniqure NV (NASDAQ:QURE) is the most popular stock in this table. On the other hand EnerSys (NYSE:ENS) is the least popular one with only 16 bullish hedge fund positions. Webster Financial Corporation (NYSE:WBS) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on WBS as the stock returned 25.5% in Q2 (through the end of May) 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.