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The Williams Companies, Inc. (WMB): Hedge Funds Turning Bearish

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded The Williams Companies, Inc. (NYSE:WMB) and determine whether the smart money was really smart about this stock.

The Williams Companies, Inc. (NYSE:WMB) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistics is 73. WMB has seen a decrease in enthusiasm from smart money in recent months. There were 47 hedge funds in our database with WMB positions at the end of the first quarter. Our calculations also showed that WMB 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.

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 56 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.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let’s view the latest hedge fund action regarding The Williams Companies, Inc. (NYSE:WMB).

Hedge fund activity in The Williams Companies, Inc. (NYSE:WMB)

At second quarter’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in WMB a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, Southeastern Asset Management was the largest shareholder of The Williams Companies, Inc. (NYSE:WMB), with a stake worth $183.1 million reported as of the end of September. Trailing Southeastern Asset Management was Point State Capital, which amassed a stake valued at $62.6 million. Levin Easterly Partners, Holocene Advisors, and Millennium 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 Heronetta Management allocated the biggest weight to The Williams Companies, Inc. (NYSE:WMB), around 6.28% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, earmarking 4.57 percent of its 13F equity portfolio to WMB.

Seeing as The Williams Companies, Inc. (NYSE:WMB) has witnessed falling interest from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedge funds that decided to sell off their full holdings heading into Q3. Interestingly, Jonathan Kolatch’s Redwood Capital Management cut the biggest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $20.9 million in stock, and Howard Marks’s Oaktree Capital Management was right behind this move, as the fund dropped about $14.2 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Williams Companies, Inc. (NYSE:WMB) but similarly valued. We will take a look at Ecopetrol S.A. (NYSE:EC), Fortive Corporation (NYSE:FTV), China Telecom Corporation Limited (NYSE:CHA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Ball Corporation (NYSE:BLL), Kellogg Company (NYSE:K), and Incyte Corporation (NASDAQ:INCY). This group of stocks’ market values resemble WMB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EC 11 113508 -1
FTV 35 1372140 0
CHA 5 30145 0
BBVA 11 164405 3
BLL 38 767527 -3
K 33 418366 -4
INCY 29 4432332 -11
Average 23.1 1042632 -2.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $1043 million. That figure was $467 million in WMB’s case. Ball Corporation (NYSE:BLL) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks The Williams Companies, Inc. (NYSE:WMB) is more popular among hedge funds. Our overall hedge fund sentiment score for WMB 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. 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 still beat the market by 23.2 percentage points. Unfortunately WMB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WMB were disappointed as the stock returned 9.1% since the end of the second quarter 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 most of these stocks already outperformed the market in 2020.

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