As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the third quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Webster Financial Corporation (NYSE:WBS).
Webster Financial Corporation (NYSE:WBS) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of the third quarter of 2019. 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 Telecom Argentina S.A. (NYSE:TEO), Spirit Realty Capital Inc (NYSE:SRC), and Clean Harbors Inc (NYSE:CLH) to gather more data points. Our calculations also showed that WBS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the latest hedge fund action encompassing Webster Financial Corporation (NYSE:WBS).
What does smart money think about Webster Financial Corporation (NYSE:WBS)?
At Q3’s end, a total of 22 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 28 hedge funds with a bullish position in WBS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Nitorum Capital held the most valuable stake in Webster Financial Corporation (NYSE:WBS), which was worth $84.7 million at the end of the third quarter. On the second spot was Pzena Investment Management which amassed $57.5 million worth of shares. Polaris Capital Management, Fisher Asset Management, and Renaissance Technologies were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Webster Financial Corporation (NYSE:WBS), around 4.93% of its 13F portfolio. MD Sass is also relatively very bullish on the stock, earmarking 3.34 percent of its 13F equity portfolio to WBS.
Seeing as Webster Financial Corporation (NYSE:WBS) has experienced declining sentiment from hedge fund managers, it’s easy to see that there were a few hedge funds that elected to cut their positions entirely in the third quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace sold off the largest position of the 750 funds followed by Insider Monkey, valued at an estimated $6.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $1.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Webster Financial Corporation (NYSE:WBS) but similarly valued. We will take a look at Telecom Argentina S.A. (NYSE:TEO), Spirit Realty Capital Inc (NYSE:SRC), Clean Harbors Inc (NYSE:CLH), and Qurate Retail, Inc. (NASDAQ:QRTEA). This group of stocks’ market caps are closest to WBS’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 20 hedge funds with bullish positions and the average amount invested in these stocks was $325 million. That figure was $338 million in WBS’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 4 bullish hedge fund positions. Webster Financial Corporation (NYSE:WBS) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WBS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WBS were disappointed as the stock returned 4.7% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.