Is WTRE A Good Stock To Buy Now?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Watford Holdings Ltd. (NASDAQ:WTRE).

Is WTRE a good stock to buy now? The best stock pickers were getting more optimistic. The number of long hedge fund positions increased by 5 in recent months. Watford Holdings Ltd. (NASDAQ:WTRE) was in 11 hedge funds’ portfolios at the end of September. The all time high for this statistics is 7. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WTRE 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Levin of Levin Capital

John Levin of Levin Capital Strategies

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. Now we’re going to view the key hedge fund action regarding Watford Holdings Ltd. (NASDAQ:WTRE).

Do Hedge Funds Think WTRE Is A Good Stock To Buy Now?

At the end of September, a total of 11 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 83% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in WTRE over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Watford Holdings Ltd. (NASDAQ:WTRE) was held by Capital Returns Management, which reported holding $9.8 million worth of stock at the end of September. It was followed by Millennium Management with a $1.7 million position. Other investors bullish on the company included Almitas Capital, Citadel Investment Group, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Watford Holdings Ltd. (NASDAQ:WTRE), around 25.4% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, setting aside 1.7 percent of its 13F equity portfolio to WTRE.

Consequently, key hedge funds were leading the bulls’ herd. Millennium Management, managed by Israel Englander, established the most outsized position in Watford Holdings Ltd. (NASDAQ:WTRE). Millennium Management had $1.7 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.6 million investment in the stock during the quarter. The other funds with brand new WTRE positions are John A. Levin’s Levin Capital Strategies, Greg Eisner’s Engineers Gate Manager, and Donald Sussman’s Paloma Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Watford Holdings Ltd. (NASDAQ:WTRE) but similarly valued. We will take a look at American Software, Inc. (NASDAQ:AMSWA), Inventiva S.A. (NASDAQ:IVA), Ennis, Inc. (NYSE:EBF), Bank First Corporation (NASDAQ:BFC), Digi International Inc. (NASDAQ:DGII), Boston Private Financial Hldg Inc (NASDAQ:BPFH), and CrossFirst Bankshares, Inc. (NASDAQ:CFB). This group of stocks’ market values are closest to WTRE’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMSWA 11 40697 -1
IVA 8 26719 8
EBF 8 62311 -2
BFC 1 18 -1
DGII 11 40764 0
BPFH 22 29544 2
CFB 3 8221 -1
Average 9.1 29753 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.1 hedge funds with bullish positions and the average amount invested in these stocks was $30 million. That figure was $16 million in WTRE’s case. Boston Private Financial Hldg Inc (NASDAQ:BPFH) is the most popular stock in this table. On the other hand Bank First Corporation (NASDAQ:BFC) is the least popular one with only 1 bullish hedge fund positions. Watford Holdings Ltd. (NASDAQ:WTRE) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WTRE is 63.8. 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. 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 still beat the market by 16.2 percentage points. Hedge funds were also right about betting on WTRE as the stock returned 51.3% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.