Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
Is Woodward Inc (NASDAQ:WWD) a good investment right now? Hedge funds are reducing their bets on the stock. The number of bullish hedge fund positions contracted by 7 lately. There were 8 hedge funds in our database with WWD holdings at the end of September. 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 Companhia Siderurgica Nacional (ADR) (NYSE:SID), CAE, Inc. (USA) (NYSE:CAE), and Allied World Assurance Co Holdings, AG. (NYSE:AWH) to gather more data points.
We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.
With all of this in mind, let’s take a peek at the key action encompassing Woodward Inc (NASDAQ:WWD).
What does the smart money think about Woodward Inc (NASDAQ:WWD)?
Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were long this stock, a change of -47% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in WWD heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s elite fund database, Chuck Royce’s Royce & Associates has the number one position in Woodward Inc (NASDAQ:WWD), worth close to $116.2 million, comprising 0.8% of its total 13F portfolio. Coming in second is Citadel Investment Group, led by Ken Griffin, holding a $36.2 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism include Cliff Asness’s AQR Capital Management, Mario Gabelli’s GAMCO Investors and D E Shaw, one of the biggest hedge funds in the world. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.