We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Westpac Banking Corporation (NYSE:WBK).
Westpac Banking Corporation (NYSE:WBK) has seen an increase in hedge fund sentiment of late. WBK was in 7 hedge funds’ portfolios at the end of December. There were 4 hedge funds in our database with WBK holdings at the end of the previous quarter. Our calculations also showed that WBK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 41 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.
Steven Cohen of Point72 Asset Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the fresh hedge fund action surrounding Westpac Banking Corporation (NYSE:WBK).
What does smart money think about Westpac Banking Corporation (NYSE:WBK)?
At the end of the fourth quarter, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 75% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WBK over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the number one position in Westpac Banking Corporation (NYSE:WBK). Renaissance Technologies has a $40.8 million position in the stock, comprising less than 0.1%% of its 13F portfolio. On Renaissance Technologies’s heels is D E Shaw, led by D. E. Shaw, holding a $4.4 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other peers that are bullish consist of Ken Griffin’s Citadel Investment Group, John Overdeck and David Siegel’s Two Sigma Advisors and Steve Cohen’s Point72 Asset Management. In terms of the portfolio weights assigned to each position Renaissance Technologies allocated the biggest weight to Westpac Banking Corporation (NYSE:WBK), around 0.03% of its 13F portfolio. D E Shaw is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to WBK.
Now, some big names have jumped into Westpac Banking Corporation (NYSE:WBK) headfirst. Two Sigma Advisors, managed by John Overdeck and David Siegel, initiated the most valuable position in Westpac Banking Corporation (NYSE:WBK). Two Sigma Advisors had $0.8 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $0.8 million position during the quarter. The only other fund with a new position in the stock is Donald Sussman’s Paloma Partners.
Let’s now review hedge fund activity in other stocks similar to Westpac Banking Corporation (NYSE:WBK). These stocks are Crown Castle International Corp. (NYSE:CCI), Colgate-Palmolive Company (NYSE:CL), Northrop Grumman Corporation (NYSE:NOC), and Lloyds Banking Group PLC (NYSE:LYG). This group of stocks’ market values are similar to WBK’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CCI | 38 | 1723851 | -3 |
| CL | 52 | 2086840 | 7 |
| NOC | 44 | 1320442 | -2 |
| LYG | 5 | 66676 | -3 |
| Average | 34.75 | 1299452 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 34.75 hedge funds with bullish positions and the average amount invested in these stocks was $1299 million. That figure was $49 million in WBK’s case. Colgate-Palmolive Company (NYSE:CL) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Westpac Banking Corporation (NYSE:WBK) 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. 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 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately WBK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WBK investors were disappointed as the stock returned -27% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
