Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 5.2% in the 12 months ending October 30, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, hedge funds’ 30 preferred S&P 500 stocks (as of September 2014) generated a return of 9.5% during the same 12-month period, with 63% of these stock picks outperformed the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 16-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Weyerhaeuser Company (NYSE:WY).
Is Weyerhaeuser Company a sound investment right now? The best stock pickers are becoming more confident. The number of bullish hedge fund positions inched up by 1 recently. 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 Principal Financial Group Inc (NYSE:PFG), Medivation Inc (NASDAQ:MDVN), and Advance Auto Parts, Inc. (NYSE:AAP) to gather more data points.
To most shareholders, hedge funds are perceived as underperforming, outdated investment tools of years past. While there are over 8000 funds with their doors open today, Our researchers hone in on the leaders of this group, about 700 funds. These money managers administer bulk of all hedge funds’ total asset base, and by paying attention to their finest equity investments, Insider Monkey has come up with numerous investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.
Now, let’s take a look at the new action regarding Weyerhaeuser Company (NYSE:WY).
Hedge fund activity in Weyerhaeuser Company (NYSE:WY)
Heading into Q4, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Third Avenue Management, managed by Martin Whitman, holds the largest position in Weyerhaeuser Company (NYSE:WY). Third Avenue Management has a $322.8 million position in the stock, comprising 8.8% of its 13F portfolio. Sitting at the No. 2 spot is Long Pond Capital, led by John Khoury, holding a $64.3 million position; the fund has 2.8% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Phill Gross and Robert Atchinson’s Adage Capital Management and David Harding’s Winton Capital Management.
Consequently, key money managers have jumped into Weyerhaeuser Company (NYSE:WY) headfirst. Long Pond Capital established the largest position in Weyerhaeuser Company (NYSE:WY). John Overdeck and David Siegel’s Two Sigma Advisors also made a $16.5 million investment in the stock during the quarter. The other funds with brand new WY positions are Joel Greenblatt’s Gotham Asset Management, Ken Griffin’s Citadel Investment Group, and J. Alan Reid, Jr.’s Forward Management.
Let’s now take a look at hedge fund activity in other stocks similar to Weyerhaeuser Company (NYSE:WY). We will take a look at Principal Financial Group Inc (NYSE:PFG), Medivation Inc (NASDAQ:MDVN), Advance Auto Parts, Inc. (NYSE:AAP), and Rogers Communications Inc. (USA) (NYSE:RCI). This group of stocks’ market caps are closest to WY’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $784 million. That figure was $1.06 billion in WY’s case. Advance Auto Parts, Inc. (NYSE:AAP) is the most popular stock in this table, while Rogers Communications Inc. (USA) (NYSE:RCI) is the least popular one with only 15 bullish hedge fund positions. Weyerhaeuser Company (NYSE:WY) 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. In this regard AAP might be a better candidate to consider a long position.