Here’s What Hedge Funds Think About WestRock Company (WRK)

Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 8 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by nearly 9 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of WestRock Company (NYSE:WRK).

WestRock Company (NYSE:WRK) investors should pay attention to a decrease in support from the world’s most elite money managers of late. WRK was in 23 hedge funds’ portfolios at the end of the first quarter of 2019. There were 29 hedge funds in our database with WRK positions at the end of the previous quarter. Our calculations also showed that wrk isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

Let’s take a look at the key hedge fund action surrounding WestRock Company (NYSE:WRK).

How have hedgies been trading WestRock Company (NYSE:WRK)?

Heading into the second quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WRK over the last 15 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

No of Hedge Funds with WRK Positions

The largest stake in WestRock Company (NYSE:WRK) was held by Lakewood Capital Management, which reported holding $133.2 million worth of stock at the end of March. It was followed by Impax Asset Management with a $87 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and Two Sigma Advisors.

Due to the fact that WestRock Company (NYSE:WRK) has faced falling interest from hedge fund managers, logic holds that there was a specific group of funds who sold off their full holdings last quarter. Interestingly, Joel Greenblatt’s Gotham Asset Management dropped the largest stake of all the hedgies tracked by Insider Monkey, valued at about $18.5 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dumped its stock, about $16.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to WestRock Company (NYSE:WRK). These stocks are PagSeguro Digital Ltd. (NYSE:PAGS), Inc (NYSE:WUBA), Sea Limited (NYSE:SE), and Spirit AeroSystems Holdings, Inc. (NYSE:SPR). This group of stocks’ market values resemble WRK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PAGS 30 1280413 6
WUBA 24 528862 1
SE 50 2178777 36
SPR 29 2186164 -3
Average 33.25 1543554 10

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.25 hedge funds with bullish positions and the average amount invested in these stocks was $1544 million. That figure was $461 million in WRK’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Inc (NYSE:WUBA) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks WestRock Company (NYSE:WRK) is even less popular than WUBA. Hedge funds dodged a bullet by taking a bearish stance towards WRK. Our calculations showed that the top 15 most popular hedge fund stocks returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately WRK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WRK investors were disappointed as the stock returned -12.5% during the same time frame and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in the second quarter.

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