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Should You Avoid WNS (Holdings) Limited (WNS)?

In this article we will take a look at whether hedge funds think WNS (Holdings) Limited (NYSE:WNS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

WNS (Holdings) Limited (NYSE:WNS) has experienced a decrease in hedge fund interest in recent months. WNS was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with WNS positions at the end of the previous quarter. Our calculations also showed that WNS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the key hedge fund action regarding WNS (Holdings) Limited (NYSE:WNS).

Hedge fund activity in WNS (Holdings) Limited (NYSE:WNS)

Heading into the second quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in WNS a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of WNS (Holdings) Limited (NYSE:WNS), with a stake worth $71.6 million reported as of the end of September. Trailing Renaissance Technologies was Diamond Hill Capital, which amassed a stake valued at $34.7 million. Arrowstreet Capital, Millennium Management, and Fisher Asset Management 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 Sensato Capital Management allocated the biggest weight to WNS (Holdings) Limited (NYSE:WNS), around 6.75% of its 13F portfolio. Lee Capital Management is also relatively very bullish on the stock, setting aside 3.17 percent of its 13F equity portfolio to WNS.

Since WNS (Holdings) Limited (NYSE:WNS) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there exists a select few hedge funds who sold off their entire stakes last quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP sold off the largest stake of all the hedgies watched by Insider Monkey, totaling an estimated $12.6 million in stock, and Sander Gerber’s Hudson Bay Capital Management was right behind this move, as the fund sold off about $1.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 3 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to WNS (Holdings) Limited (NYSE:WNS). These stocks are Kodiak Sciences Inc (NASDAQ:KOD), Barnes Group Inc. (NYSE:B), Box, Inc. (NYSE:BOX), and Cal-Maine Foods Inc (NASDAQ:CALM). All of these stocks’ market caps match WNS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KOD 12 770396 1
B 11 14286 0
BOX 34 487198 -1
CALM 26 219068 11
Average 20.75 372737 2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $373 million. That figure was $185 million in WNS’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Barnes Group Inc. (NYSE:B) is the least popular one with only 11 bullish hedge fund positions. WNS (Holdings) Limited (NYSE:WNS) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on WNS as the stock returned 28.7% during the second quarter and outperformed the market by an even larger margin.

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