Legendary investors such as Leon Cooperman and Seth Klarman earn enormous amounts of money for themselves and their investors by doing in-depth research on small-cap stocks that big brokerage houses don’t publish. Small cap stocks -especially when they are screened well- can generate substantial outperformance versus a boring index fund. That’s why we analyze the activity of those successful funds in these small-cap stocks. In the following paragraphs, we analyze Watts Water Technologies Inc (NYSE:WTS) from the perspective of those successful funds.
Watts Water Technologies Inc (NYSE:WTS) was in 11 hedge funds’ portfolios at the end of the third quarter of 2016. WTS has experienced a decrease in activity from the world’s largest hedge funds of late. There were 13 hedge funds in our database with WTS holdings 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 PBF Energy Inc (NYSE:PBF), ABM Industries, Inc. (NYSE:ABM), and Hilltop Holdings Inc. (NYSE:HTH) to gather more data points.
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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 check out the latest action regarding Watts Water Technologies Inc (NYSE:WTS).
How have hedgies been trading Watts Water Technologies Inc (NYSE:WTS)?
Heading into the fourth quarter of 2016, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, down 15% from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in WTS over the last 5 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable 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, Select Equity Group, led by Robert Joseph Caruso, holds the most valuable position in Watts Water Technologies Inc (NYSE:WTS). According to regulatory filings, the fund has a $152.8 million position in the stock, comprising 1.3% of its 13F portfolio. On Select Equity Group’s heels is Ian Simm of Impax Asset Management, with a $109.6 million position; 5% of its 13F portfolio is allocated to the stock. Some other members of the smart money that are bullish contain Mario Gabelli’s GAMCO Investors, James A. Noonan’s Pivot Point Capital and Phill Gross and Robert Atchinson’s Adage Capital Management. We should note that Impax Asset Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cut their entire stakes in the stock during the third quarter. It’s worth mentioning that D E Shaw, one of the biggest hedge funds in the world cut the largest position of all the hedgies monitored by Insider Monkey, comprising close to $0.9 million in Watts Water Technologies Inc (NYSE:WTS) stock, and Israel Englander’s Millennium Management was right behind this move, as the fund said goodbye to about $0.4 million worth of shares.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Watts Water Technologies Inc (NYSE:WTS) but similarly valued. These stocks are PBF Energy Inc (NYSE:PBF), ABM Industries, Inc. (NYSE:ABM), Hilltop Holdings Inc. (NYSE:HTH), and Dorman Products Inc. (NASDAQ:DORM). This group of stocks’ market valuations match WTS’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $180 million. That figure was $434 million in WTS’s case. PBF Energy Inc (NYSE:PBF) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 9 bullish hedge fund positions. Watts Water Technologies Inc (NYSE:WTS) 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 PBF might be a better candidate to consider taking a long position in.