Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Watts Water Technologies Inc (NYSE:WTS) based on that data.
Hedge fund interest in Watts Water Technologies Inc (NYSE:WTS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Avista Corp (NYSE:AVA), Hamilton Lane Incorporated (NASDAQ:HLNE), and Companhia Paranaense de Energia – COPEL (NYSE:ELP) to gather more data points. Our calculations also showed that WTS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 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 58 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.
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s check out the new hedge fund action regarding Watts Water Technologies Inc (NYSE:WTS).
Hedge fund activity in Watts Water Technologies Inc (NYSE:WTS)
Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in WTS a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Watts Water Technologies Inc (NYSE:WTS), with a stake worth $85.8 million reported as of the end of September. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $80 million. Renaissance Technologies, GLG Partners, and Royce & Associates 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 Impax Asset Management allocated the biggest weight to Watts Water Technologies Inc (NYSE:WTS), around 1.14% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.94 percent of its 13F equity portfolio to WTS.
Since Watts Water Technologies Inc (NYSE:WTS) has faced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there was a specific group of fund managers that decided to sell off their positions entirely by the end of the first quarter. At the top of the heap, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dropped the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $10.5 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $0.9 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Watts Water Technologies Inc (NYSE:WTS) but similarly valued. We will take a look at Avista Corp (NYSE:AVA), Hamilton Lane Incorporated (NASDAQ:HLNE), Companhia Paranaense de Energia – COPEL (NYSE:ELP), and Envestnet Inc (NYSE:ENV). This group of stocks’ market caps are similar to WTS’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $83 million. That figure was $237 million in WTS’s case. Avista Corp (NYSE:AVA) is the most popular stock in this table. On the other hand Companhia Paranaense de Energia – COPEL (NYSE:ELP) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Watts Water Technologies Inc (NYSE:WTS) is more popular among hedge funds. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. Unfortunately WTS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WTS were disappointed as the stock returned -3.8% during the second quarter (through June 22nd) 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.