How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Willis Towers Watson Public Limited Company (NASDAQ:WLTW) and determine whether hedge funds had an edge regarding this stock.
Is Willis Towers Watson Public Limited Company (NASDAQ:WLTW) a great stock to buy now? Money managers were in an optimistic mood. The number of long hedge fund positions increased by 6 lately. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) was in 49 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 55. Our calculations also showed that WLTW isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 58 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. 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 precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s view the fresh hedge fund action regarding Willis Towers Watson Public Limited Company (NASDAQ:WLTW).
Hedge fund activity in Willis Towers Watson Public Limited Company (NASDAQ:WLTW)
At Q2’s end, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WLTW over the last 20 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cantillon Capital Management, managed by William von Mueffling, holds the most valuable position in Willis Towers Watson Public Limited Company (NASDAQ:WLTW). Cantillon Capital Management has a $466.7 million position in the stock, comprising 4.1% of its 13F portfolio. Coming in second is Abrams Capital Management, managed by David Abrams, which holds a $215.5 million position; the fund has 7% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Alec Litowitz and Ross Laser’s Magnetar Capital, Israel Englander’s Millennium Management and Clint Carlson’s Carlson Capital. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to Willis Towers Watson Public Limited Company (NASDAQ:WLTW), around 11.04% of its 13F portfolio. Jet Capital Investors is also relatively very bullish on the stock, earmarking 10.76 percent of its 13F equity portfolio to WLTW.
Consequently, key hedge funds were leading the bulls’ herd. Jet Capital Investors, managed by Matthew Mark, created the largest position in Willis Towers Watson Public Limited Company (NASDAQ:WLTW). Jet Capital Investors had $52.2 million invested in the company at the end of the quarter. John Orrico’s Water Island Capital also initiated a $51.8 million position during the quarter. The following funds were also among the new WLTW investors: John Bader’s Halcyon Asset Management, Steven Clark’s Omni Partners, and James Dinan’s York Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Willis Towers Watson Public Limited Company (NASDAQ:WLTW). These stocks are RingCentral Inc (NYSE:RNG), PPG Industries, Inc. (NYSE:PPG), ANSYS, Inc. (NASDAQ:ANSS), Okta, Inc. (NASDAQ:OKTA), HP Inc. (NYSE:HPQ), McKesson Corporation (NYSE:MCK), and Public Service Enterprise Group Incorporated (NYSE:PEG). This group of stocks’ market valuations are closest to WLTW’s market valuation.
|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 46.4 hedge funds with bullish positions and the average amount invested in these stocks was $1562 million. That figure was $2288 million in WLTW’s case. RingCentral Inc (NYSE:RNG) is the most popular stock in this table. On the other hand Public Service Enterprise Group Incorporated (NYSE:PEG) is the least popular one with only 31 bullish hedge fund positions. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WLTW is 65.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately WLTW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WLTW were disappointed as the stock returned 4.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.