Is Willis Group Holdings PLC (WSH) Going to Burn These Hedge Funds?

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 Willis Group Holdings PLC (NYSE:WSH).

Willis Group Holdings PLC (NYSE:WSH) has seen an increase in hedge fund interest lately. WSH was in 27 hedge funds’ portfolios at the end of the third quarter of 2015. There were 26 hedge funds in our database with WSH positions at the end of the previous quarter. 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 News Corp (NASDAQ:NWSA), AGL Resources Inc. (NYSE:GAS), and Gildan Activewear Inc (USA) (NYSE:GIL) to gather more data points.

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To the average investor, there are many methods market participants employ to size up their holdings. A pair of the less known methods are hedge fund and insider trading interest. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outclass the broader indices by a significant margin (see the details here).

Keeping this in mind, we’re going to view the key action surrounding Willis Group Holdings PLC (NYSE:WSH).

Hedge fund activity in Willis Group Holdings PLC (NYSE:WSH)

At the Q3’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. 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).

When looking at the institutional investors followed by Insider Monkey, ValueAct Capital, managed by Jeffrey Ubben, holds the largest position in Willis Group Holdings PLC (NYSE:WSH). ValueAct Capital has an $754.8 million position in the stock, comprising 4.4% of its 13F portfolio. The second most bullish fund manager is Cantillon Capital Management, led by William von Mueffling, holding an $340.9 million position; 7.3% of its 13F portfolio is allocated to the company. Some other members of the smart money that are bullish include Richard S. Pzena’s Pzena Investment Management, Ken Griffin’s Citadel Investment Group and D. E. Shaw’s D E Shaw.

As aggregate interest increased, specific money managers have been driving this bullishness. Discovery Capital Management, managed by Rob Citrone, established the most valuable position in Willis Group Holdings PLC (NYSE:WSH). Discovery Capital Management had $28 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also made an $2.1 million investment in the stock during the quarter. The other funds with new positions in the stock are Ken Gray and Steve Walsh’s Bryn Mawr Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Willis Group Holdings PLC (NYSE:WSH) but similarly valued. These stocks are News Corp (NASDAQ:NWSA), AGL Resources Inc. (NYSE:GAS), Gildan Activewear Inc (USA) (NYSE:GIL), and Comerica Incorporated (NYSE:CMA). This group of stocks’ market values are closest to WSH’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NWSA 35 1126782 -4
GAS 30 528324 2
GIL 19 203148 8
CMA 40 745881 1

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $651 million, lower than the $2.34 billion in WSH’s case. Comerica Incorporated (NYSE:CMA) is the most popular stock in this table. On the other hand Gildan Activewear Inc (USA) (NYSE:GIL) is the least popular one with only 19 bullish hedge fund positions. Willis Group Holdings PLC (NYSE:WSH) is not the least popular stock in this group, but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard CMA might be a better candidate to consider a long position.