Amid an overall market correction, many stocks that smart money investors were collectively bullish on tanked during the fourth quarter. Among them, Amazon and Netflix ranked among the top 30 picks and both lost more than 25%. Facebook, which was the second most popular stock, lost 20% amid uncertainty regarding the interest rates and tech valuations. Nevertheless, our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the first 2.5 months of 2019 and outperformed the broader market benchmark by 6.6 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a gander at the latest hedge fund action surrounding WSFS Financial Corporation (NASDAQ:WSFS).
What have hedge funds been doing with WSFS Financial Corporation (NASDAQ:WSFS)?
At Q4’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 20% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in WSFS a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in WSFS Financial Corporation (NASDAQ:WSFS) was held by Renaissance Technologies, which reported holding $47.6 million worth of stock at the end of December. It was followed by Pzena Investment Management with a $26 million position. Other investors bullish on the company included Marshall Wace LLP, Royce & Associates, and Millennium Management.
As one would reasonably expect, key money managers have jumped into WSFS Financial Corporation (NASDAQ:WSFS) headfirst. Royce & Associates, managed by Chuck Royce, initiated the biggest position in WSFS Financial Corporation (NASDAQ:WSFS). Royce & Associates had $11.6 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $0.5 million investment in the stock during the quarter. The only other fund with a brand new WSFS position is Roger Ibbotson’s Zebra Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as WSFS Financial Corporation (NASDAQ:WSFS) but similarly valued. We will take a look at Suburban Propane Partners LP (NYSE:SPH), NGL Energy Partners LP (NYSE:NGL), At Home Group Inc. (NYSE:HOME), and NeoGenomics, Inc. (NASDAQ:NEO). This group of stocks’ market caps are closest to WSFS’s market cap.
|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 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $116 million in WSFS’s case. At Home Group Inc. (NYSE:HOME) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. WSFS Financial Corporation (NASDAQ:WSFS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately WSFS wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); WSFS investors were disappointed as the stock returned 12.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.