Hedge Funds Souring On Williams-Sonoma, Inc. (WSM)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Williams-Sonoma, Inc. (NYSE:WSM).

Williams-Sonoma, Inc. (NYSE:WSM) was in 26 hedge funds’ portfolios at the end of the first quarter of 2020. WSM investors should pay attention to a decrease in activity from the world’s largest hedge funds in recent months. There were 29 hedge funds in our database with WSM positions at the end of the previous quarter. Our calculations also showed that WSM 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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 let’s check out the key hedge fund action regarding Williams-Sonoma, Inc. (NYSE:WSM).

How have hedgies been trading Williams-Sonoma, Inc. (NYSE:WSM)?

At Q1’s end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WSM over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Williams-Sonoma, Inc. (NYSE:WSM) was held by AQR Capital Management, which reported holding $52.5 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $23.4 million position. Other investors bullish on the company included Renaissance Technologies, Select Equity Group, and D E Shaw. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Williams-Sonoma, Inc. (NYSE:WSM), around 0.53% of its 13F portfolio. Cinctive Capital Management is also relatively very bullish on the stock, setting aside 0.31 percent of its 13F equity portfolio to WSM.

Because Williams-Sonoma, Inc. (NYSE:WSM) has faced declining sentiment from hedge fund managers, we can see that there is a sect of money managers that slashed their full holdings in the first quarter. Interestingly, James Parsons’s Junto Capital Management cut the largest position of all the hedgies watched by Insider Monkey, totaling about $54.5 million in stock, and Steven Boyd’s Armistice Capital was right behind this move, as the fund dumped about $32.8 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 3 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Williams-Sonoma, Inc. (NYSE:WSM). We will take a look at Floor & Decor Holdings, Inc. (NYSE:FND), Empire State Realty Trust Inc (NYSE:ESRT), Seaboard Corporation (NYSE:SEB), and Littelfuse, Inc. (NASDAQ:LFUS). This group of stocks’ market caps are closest to WSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FND 23 400020 -4
ESRT 16 151926 -2
SEB 15 108625 -3
LFUS 22 218011 1
Average 19 219646 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $220 million. That figure was $182 million in WSM’s case. Floor & Decor Holdings, Inc. (NYSE:FND) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Williams-Sonoma, Inc. (NYSE:WSM) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on WSM as the stock returned 97.5% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

Follow Williams Sonoma Inc (NYSE:WSM)

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