Was The Smart Money Right About Wayfair Inc (W)?

The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Wayfair Inc (NYSE:W).

Hedge fund interest in Wayfair Inc (NYSE:W) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that W isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). At the end of this article we will also compare W to other stocks including Etsy Inc (NASDAQ:ETSY), AvalonBay Communities Inc (NYSE:AVB), and China Telecom Corporation Limited (NYSE:CHA) to get a better sense of its popularity.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind we’re going to take a glance at the key hedge fund action regarding Wayfair Inc (NYSE:W).

Do Hedge Funds Think W Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in W a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Wayfair Inc (NYSE:W) was held by Spruce House Investment Management, which reported holding $1083.9 million worth of stock at the end of December. It was followed by Bares Capital Management with a $584 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Spruce House Investment Management allocated the biggest weight to Wayfair Inc (NYSE:W), around 33.17% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 10.8 percent of its 13F equity portfolio to W.

Because Wayfair Inc (NYSE:W) has faced falling interest from the aggregate hedge fund industry, logic holds that there exists a select few fund managers who sold off their entire stakes heading into Q1. Interestingly, Alex Sacerdote’s Whale Rock Capital Management said goodbye to the biggest investment of all the hedgies followed by Insider Monkey, comprising about $436.6 million in stock, and Xiuping Li’s Opti Capital Management was right behind this move, as the fund said goodbye to about $41.5 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Wayfair Inc (NYSE:W). These stocks are Etsy Inc (NASDAQ:ETSY), AvalonBay Communities Inc (NYSE:AVB), China Telecom Corporation Limited (NYSE:CHA), Enphase Energy Inc (NASDAQ:ENPH), Equity Residential (NYSE:EQR), Arista Networks Inc (NYSE:ANET), and Nokia Corporation (NYSE:NOK). All of these stocks’ market caps resemble W’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ETSY 56 1963085 5
AVB 32 864498 3
CHA 5 19901 2
ENPH 48 988127 6
EQR 28 557427 1
ANET 35 396873 8
NOK 19 186378 -2
Average 31.9 710898 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $711 million. That figure was $2845 million in W’s case. Etsy Inc (NASDAQ:ETSY) 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. Wayfair Inc (NYSE:W) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for W is 68.6. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on W as the stock returned 30.9% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Wayfair Inc. (NYSE:W)

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