Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Is WABCO Holdings Inc. (NYSE:WBC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
WABCO Holdings Inc. (NYSE:WBC) shareholders have witnessed an increase in support from the world’s most elite money managers of late. Our calculations also showed that WBC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Clint Carlson of Carlson Capital
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 let’s take a peek at the new hedge fund action surrounding WABCO Holdings Inc. (NYSE:WBC).
How are hedge funds trading WABCO Holdings Inc. (NYSE:WBC)?
At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WBC over the last 18 quarters. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Alpine Associates was the largest shareholder of WABCO Holdings Inc. (NYSE:WBC), with a stake worth $203.2 million reported as of the end of September. Trailing Alpine Associates was Magnetar Capital, which amassed a stake valued at $193.5 million. Carlson Capital, Water Island Capital, and Renaissance Technologies 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 White Square Capital allocated the biggest weight to WABCO Holdings Inc. (NYSE:WBC), around 19.88% of its 13F portfolio. One68 Global Capital is also relatively very bullish on the stock, earmarking 14.63 percent of its 13F equity portfolio to WBC.
As one would reasonably expect, key money managers have jumped into WABCO Holdings Inc. (NYSE:WBC) headfirst. Sandell Asset Management, managed by Tom Sandell, created the biggest position in WABCO Holdings Inc. (NYSE:WBC). Sandell Asset Management had $31.4 million invested in the company at the end of the quarter. Simon Sadler’s Segantii Capital also initiated a $22 million position during the quarter. The following funds were also among the new WBC investors: John Overdeck and David Siegel’s Two Sigma Advisors, Parvinder Thiara’s Athanor Capital, and David Nguyen and Nancy Oh’s One68 Global Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as WABCO Holdings Inc. (NYSE:WBC) but similarly valued. We will take a look at Arrow Electronics, Inc. (NYSE:ARW), Dolby Laboratories, Inc. (NYSE:DLB), Watsco Inc (NYSE:WSO), and argenx SE (NASDAQ:ARGX). This group of stocks’ market caps resemble WBC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARW | 34 | 680214 | 10 |
| DLB | 31 | 511426 | 3 |
| WSO | 23 | 191625 | 1 |
| ARGX | 26 | 788285 | 0 |
| Average | 28.5 | 542888 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $543 million. That figure was $1206 million in WBC’s case. Arrow Electronics, Inc. (NYSE:ARW) is the most popular stock in this table. On the other hand Watsco Inc (NYSE:WSO) is the least popular one with only 23 bullish hedge fund positions. WABCO Holdings Inc. (NYSE:WBC) is not the most popular stock in this group but hedge fund interest is still above average. 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 22.3% in 2020 through March 16th but still beat the market by 3.2 percentage points. Hedge funds were also right about betting on WBC as the stock returned -7.9% during the first quarter (through March 16th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
