It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 5.2% over the 12-month period ending October 30, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey (as of September 2014) generated a return of 9.5% over the same time span, with 63% of these stocks outperforming the benchmark. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Watts Water Technologies Inc (NYSE:WTS).
Watts Water Technologies Inc (NYSE:WTS) investors should be aware of a decrease in hedge fund sentiment recently. The stock market had a similar reaction, with the stock of the company growing only 1.87% during the third quarter. In order to understand more about the hedge fund behavior concerning Watts Water Technologies Inc (NYSE:TWS), we will discuss hedge funds that held positions in the company, at the end of the previous quarter.
The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article, we will examine companies such as Five Below Inc (NASDAQ:FIVE), American Assets Trust, Inc (NYSE:AAT), and Kemper Corporation (NYSE:KMPR) to gather more data points.
If you’d ask most stock holders, hedge funds are seen as worthless, outdated financial tools of the past. While there are more than 8000 funds with their doors open at the moment, we look at the top tier of this club, approximately 700 funds. These money managers manage bulk of all hedge funds’ total asset base, and by monitoring their inimitable equity investments, Insider Monkey has figured out several investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Now, let’s go over the recent action encompassing Watts Water Technologies Inc (NYSE:WTS).
How have hedgies been trading Watts Water Technologies Inc (NYSE:WTS)?
Heading into Q4, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a decline of 13% from the previous quarter. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Robert Joseph Caruso’s Select Equity Group has the largest position in Watts Water Technologies Inc (NYSE:WTS), worth close to $100 million, corresponding to 1% of its total 13F portfolio. On Select Equity Group’s heels is GAMCO Investors, led by Mario Gabelli, holding an $84.6 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Other members of the smart money with similar optimism consist of Ian Simm’s Impax Asset Management, James A. Noonan’s Pivot Point Capital, and Lee Munder’s Lee Munder Capital Group.
Since Watts Water Technologies Inc (NYSE:WTS) has faced a falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few money managers that elected to cut their entire stakes last quarter. Intriguingly, George McCabe’s Portolan Capital Management cut the largest position of the 700 funds monitored by Insider Monkey, valued at close to $2.2 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund dumped about $0.9 million worth of shares. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks similar to Watts Water Technologies Inc (NYSE:WTS). We will take a look at Five Below Inc (NASDAQ:FIVE), American Assets Trust, Inc (NYSE:AAT), Kemper Corporation (NYSE:KMPR), and InterDigital, Inc. (NASDAQ:IDCC). All of these stocks’ market caps are closest to Watts Water Technologies Inc (NYSE:WTS)’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see, these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $322 million in Watts Water Technologies Inc (NYSE:WTS)’s case. InterDigital, Inc. (NASDAQ:IDCC) is the most popular stock in this table. On the other hand, Kemper Corporation (NYSE:KMPR) is the least popular one with only 6 bullish hedge fund positions. Watts Water Technologies Inc (NYSE:WTS) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard, InterDigital, Inc. (NASDAQ:IDCC) might be a better candidate to consider a long position.