At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards WEX Inc (NYSE:WEX) at the end of the second quarter and determine whether the smart money was really smart about this stock.
WEX Inc (NYSE:WEX) investors should pay attention to a decrease in hedge fund interest of late. WEX Inc (NYSE:WEX) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 35. There were 35 hedge funds in our database with WEX holdings at the end of March. Our calculations also showed that WEX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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’ 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 S&P 500 ETFs by 58 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 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to take a gander at the fresh hedge fund action surrounding WEX Inc (NYSE:WEX).
How have hedgies been trading WEX Inc (NYSE:WEX)?
Heading into the third quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -31% from one quarter earlier. On the other hand, there were a total of 31 hedge funds with a bullish position in WEX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, PAR Capital Management, managed by Paul Reeder and Edward Shapiro, holds the largest position in WEX Inc (NYSE:WEX). PAR Capital Management has a $132 million position in the stock, comprising 5.1% of its 13F portfolio. On PAR Capital Management’s heels is Kensico Capital, managed by Michael Lowenstein, which holds a $100.3 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism contain Greg Poole’s Echo Street Capital Management, Brett Barakett’s Tremblant Capital and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position PAR Capital Management allocated the biggest weight to WEX Inc (NYSE:WEX), around 5.07% of its 13F portfolio. Kensico Capital is also relatively very bullish on the stock, earmarking 2.1 percent of its 13F equity portfolio to WEX.
Seeing as WEX Inc (NYSE:WEX) has experienced declining sentiment from the aggregate hedge fund industry, it’s safe to say that there were a few money managers that decided to sell off their entire stakes last quarter. It’s worth mentioning that Robert Pitts’s Steadfast Capital Management dropped the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $53.1 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund sold off about $32.2 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 11 funds last quarter.
Let’s go over hedge fund activity in other stocks similar to WEX Inc (NYSE:WEX). These stocks are Five9 Inc (NASDAQ:FIVN), Chemed Corporation (NYSE:CHE), Albertsons Companies, Inc. (NYSE:ACI), Ascendis Pharma A/S (NASDAQ:ASND), JOYY Inc. (NASDAQ:YY), Nuance Communications Inc. (NASDAQ:NUAN), and The Toro Company (NYSE:TTC). All of these stocks’ market caps are closest to WEX’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 33.4 hedge funds with bullish positions and the average amount invested in these stocks was $1412 million. That figure was $399 million in WEX’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Chemed Corporation (NYSE:CHE) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks WEX Inc (NYSE:WEX) is even less popular than CHE. Our overall hedge fund sentiment score for WEX is 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. Hedge funds dodged a bullet by taking a bearish stance towards WEX. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 21.3% in 2020 through September 25th but managed to beat the market by 17.7 percentage points. Unfortunately WEX wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); WEX investors were disappointed as the stock returned -15.1% since the end of Q2 (through 9/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.