Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Wanda Sports Group Company Limited (NASDAQ:WSG).
Is Wanda Sports Group (WSG) a good stock to buy now? Hedge fund interest in Wanda Sports Group Company Limited (NASDAQ:WSG) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that WSG isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare WSG to other stocks including DURECT Corporation (NASDAQ:DRRX), AGM Group Holdings Inc. (NASDAQ:AGMH), and RISE Education Cayman Ltd (NASDAQ:REDU) to get a better sense of its popularity.
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 66 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s take a peek at the fresh hedge fund action encompassing Wanda Sports Group Company Limited (NASDAQ:WSG).
How have hedgies been trading Wanda Sports Group Company Limited (NASDAQ:WSG)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 5 hedge funds with a bullish position in WSG a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Wanda Sports Group Company Limited (NASDAQ:WSG) was held by DG Capital Management, which reported holding $1.5 million worth of stock at the end of September. It was followed by Newtyn Management with a $1 million position. Other investors bullish on the company included GLG Partners, Madison Avenue Partners, and Renaissance Technologies. In terms of the portfolio weights assigned to each position DG Capital Management allocated the biggest weight to Wanda Sports Group Company Limited (NASDAQ:WSG), around 0.89% of its 13F portfolio. Newtyn Management is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to WSG.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Alyeska Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was GLG Partners).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Wanda Sports Group Company Limited (NASDAQ:WSG) but similarly valued. We will take a look at DURECT Corporation (NASDAQ:DRRX), AGM Group Holdings Inc. (NASDAQ:AGMH), RISE Education Cayman Ltd (NASDAQ:REDU), Profound Medical Corp. (NASDAQ:PROF), Carrols Restaurant Group, Inc. (NASDAQ:TAST), Ethan Allen Interiors Inc. (NYSE:ETH), and Central Puerto S.A. (NYSE:CEPU). This group of stocks’ market caps are closest to WSG’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 7.6 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $3 million in WSG’s case. Ethan Allen Interiors Inc. (NYSE:ETH) is the most popular stock in this table. On the other hand AGM Group Holdings Inc. (NASDAQ:AGMH) is the least popular one with only 1 bullish hedge fund positions. Wanda Sports Group Company Limited (NASDAQ:WSG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WSG is 52.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately WSG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WSG investors were disappointed as the stock returned -3% since the end of September (through 11/27) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.