“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Western Alliance Bancorporation (NYSE:WAL).
Is Western Alliance Bancorporation (NYSE:WAL) a good investment today? The best stock pickers are turning less bullish. The number of bullish hedge fund positions shrunk by 2 lately. Our calculations also showed that WAL 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the fresh hedge fund action regarding Western Alliance Bancorporation (NYSE:WAL).
How are hedge funds trading Western Alliance Bancorporation (NYSE:WAL)?
Heading into the fourth quarter of 2019, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in WAL a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Citadel Investment Group held the most valuable stake in Western Alliance Bancorporation (NYSE:WAL), which was worth $56.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $40 million worth of shares. Millennium Management, Two Sigma Advisors, and Castine Capital Management 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 Castine Capital Management allocated the biggest weight to Western Alliance Bancorporation (NYSE:WAL), around 4.03% of its portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 1.53 percent of its 13F equity portfolio to WAL.
Because Western Alliance Bancorporation (NYSE:WAL) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there were a few funds that decided to sell off their entire stakes heading into Q4. Interestingly, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital dropped the largest position of all the hedgies followed by Insider Monkey, worth an estimated $22.3 million in stock. David E. Shaw’s fund, D E Shaw, also cut its stock, about $3.6 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds heading into Q4.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Western Alliance Bancorporation (NYSE:WAL) but similarly valued. We will take a look at Shell Midstream Partners LP (NYSE:SHLX), PLDT Inc. (NYSE:PHI), Grand Canyon Education Inc (NASDAQ:LOPE), and Micro Focus Intl PLC (NYSE:MFGP). This group of stocks’ market caps are similar to WAL’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 10 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $255 million in WAL’s case. Grand Canyon Education Inc (NASDAQ:LOPE) is the most popular stock in this table. On the other hand PLDT Inc. (NYSE:PHI) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Western Alliance Bancorporation (NYSE:WAL) is more popular among hedge funds. 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. Hedge funds were also right about betting on WAL as the stock returned 13.7% during the first two months of Q4 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
Disclosure: None. This article was originally published at Insider Monkey.