Was The Smart Money Right About Wright Medical Group N.V. (WMGI)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Wright Medical Group N.V. (NASDAQ:WMGI).

Is Wright Medical Group N.V. (NASDAQ:WMGI) the right pick for your portfolio? Hedge funds were turning bullish. The number of long hedge fund positions improved by 1 lately. Wright Medical Group N.V. (NASDAQ:WMGI) was in 38 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 46. Our calculations also showed that WMGI 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). There were 37 hedge funds in our database with WMGI holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover 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 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. 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 website to get excerpts of these letters in your inbox. Now let’s view the fresh hedge fund action regarding Wright Medical Group N.V. (NASDAQ:WMGI).

How have hedgies been trading Wright Medical Group N.V. (NASDAQ:WMGI)?

Heading into the third quarter of 2020, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in WMGI over the last 20 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in Wright Medical Group N.V. (NASDAQ:WMGI) was held by Carlson Capital, which reported holding $134.7 million worth of stock at the end of June. It was followed by Magnetar Capital with a $134.4 million position. Other investors bullish on the company included Water Island Capital, Omni Partners, and Melqart Asset Management. In terms of the portfolio weights assigned to each position Havens Advisors allocated the biggest weight to Wright Medical Group N.V. (NASDAQ:WMGI), around 14.42% of its 13F portfolio. Omni Partners is also relatively very bullish on the stock, earmarking 8.86 percent of its 13F equity portfolio to WMGI.

Now, key money managers were leading the bulls’ herd. Pentwater Capital Management, managed by Matthew Halbower, established the most valuable position in Wright Medical Group N.V. (NASDAQ:WMGI). Pentwater Capital Management had $11.2 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also made a $7.9 million investment in the stock during the quarter. The following funds were also among the new WMGI investors: Donald Sussman’s Paloma Partners, Adam Guren’s Hunting Hill Global Capital, and Michael Hintze’s CQS Cayman LP.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Wright Medical Group N.V. (NASDAQ:WMGI) but similarly valued. These stocks are Lattice Semiconductor Corporation (NASDAQ:LSCC), Armstrong World Industries, Inc. (NYSE:AWI), Western Alliance Bancorporation (NYSE:WAL), GW Pharmaceuticals plc (NASDAQ:GWPH), National Fuel Gas Company (NYSE:NFG), Hutchison China MediTech Limited (NASDAQ:HCM), and Southwest Gas Holdings, Inc. (NYSE:SWX). All of these stocks’ market caps are closest to WMGI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.6 hedge funds with bullish positions and the average amount invested in these stocks was $188 million. That figure was $800 million in WMGI’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Hutchison China MediTech Limited (NASDAQ:HCM) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Wright Medical Group N.V. (NASDAQ:WMGI) is more popular among hedge funds. Our overall hedge fund sentiment score for WMGI is 80.8. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately WMGI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WMGI were disappointed as the stock returned 2.9% since the end of the second quarter (through 10/30) 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.

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