Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Workhorse Group, Inc. (NASDAQ:WKHS).
Is WKHS a good stock to buy now? Workhorse Group, Inc. (NASDAQ:WKHS) has seen an increase in hedge fund interest lately. Workhorse Group, Inc. (NASDAQ:WKHS) was in 13 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 10. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WKHS isn’t among the 30 most popular stocks among hedge funds (click for Q3 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 66 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, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind we’re going to review the key hedge fund action surrounding Workhorse Group, Inc. (NASDAQ:WKHS).
Do Hedge Funds Think WKHS Is A Good Stock To Buy Now?
At third quarter’s end, a total of 13 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 44% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in WKHS over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Arosa Capital Management held the most valuable stake in Workhorse Group, Inc. (NASDAQ:WKHS), which was worth $78 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $24.1 million worth of shares. PEAK6 Capital Management, Millennium Management, and D E Shaw 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 Arosa Capital Management allocated the biggest weight to Workhorse Group, Inc. (NASDAQ:WKHS), around 12.05% of its 13F portfolio. Ursa Fund Management is also relatively very bullish on the stock, dishing out 0.16 percent of its 13F equity portfolio to WKHS.
Consequently, specific money managers have been driving this bullishness. Arosa Capital Management, managed by Till Bechtolsheimer, created the biggest position in Workhorse Group, Inc. (NASDAQ:WKHS). Arosa Capital Management had $78 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also initiated a $1.1 million position during the quarter. The other funds with brand new WKHS positions are Matthew Hulsizer’s PEAK6 Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Lee Ainslie’s Maverick Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Workhorse Group, Inc. (NASDAQ:WKHS). We will take a look at Evercore Inc. (NYSE:EVR), Axsome Therapeutics, Inc. (NASDAQ:AXSM), Palomar Holdings, Inc. (NASDAQ:PLMR), Valmont Industries, Inc. (NYSE:VMI), BRF SA (NYSE:BRFS), Kodiak Sciences Inc (NASDAQ:KOD), and Camping World Holdings, Inc. (NYSE:CWH). This group of stocks’ market caps resemble WKHS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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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 $313 million. That figure was $106 million in WKHS’s case. Camping World Holdings, Inc. (NYSE:CWH) is the most popular stock in this table. On the other hand Palomar Holdings, Inc. (NASDAQ:PLMR) is the least popular one with only 8 bullish hedge fund positions. Workhorse Group, Inc. (NASDAQ:WKHS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WKHS is 50.9. 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. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and surpassed the market again by 16.2 percentage points. Unfortunately WKHS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WKHS investors were disappointed as the stock returned -15.5% since the end of September (through 12/8) 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.