You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund managers like Jeff Ubben, George Soros and Seth Klarman hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.
Woodward Inc (NASDAQ:WWD) was in 20 hedge funds’ portfolios at the end of March. WWD has seen an increase in hedge fund sentiment of late. There were 14 hedge funds in our database with WWD holdings at the end of the previous quarter. Our calculations also showed that WWD isn’t among the 30 most popular stocks among hedge funds.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Let’s take a gander at the fresh hedge fund action surrounding Woodward Inc (NASDAQ:WWD).
How have hedgies been trading Woodward Inc (NASDAQ:WWD)?
At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 43% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WWD over the last 15 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Woodward Inc (NASDAQ:WWD), with a stake worth $72.6 million reported as of the end of March. Trailing Royce & Associates was AQR Capital Management, which amassed a stake valued at $58.9 million. Citadel Investment Group, Millennium Management, and Holocene Advisors were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key hedge funds have jumped into Woodward Inc (NASDAQ:WWD) headfirst. Millennium Management, managed by Israel Englander, established the biggest position in Woodward Inc (NASDAQ:WWD). Millennium Management had $25.8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $7.2 million investment in the stock during the quarter. The following funds were also among the new WWD investors: Noam Gottesman’s GLG Partners, Ira Unschuld’s Brant Point Investment Management, and Richard Driehaus’s Driehaus Capital.
Let’s also examine hedge fund activity in other stocks similar to Woodward Inc (NASDAQ:WWD). These stocks are LPL Financial Holdings Inc (NASDAQ:LPLA), CAE, Inc. (NYSE:CAE), GCI Liberty, Inc. (NASDAQ:GLIBA), and Hexcel Corporation (NYSE:HXL). This group of stocks’ market values resemble WWD’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $751 million. That figure was $269 million in WWD’s case. GCI Liberty, Inc. (NASDAQ:GLIBA) is the most popular stock in this table. On the other hand CAE, Inc. (NYSE:CAE) is the least popular one with only 10 bullish hedge fund positions. Woodward Inc (NASDAQ:WWD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on WWD as the stock returned 14.9% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.