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Were Hedge Funds Right About Betting On Waste Management, Inc. (WM)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 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 March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtWaste Management, Inc. (NYSE:WM) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Waste Management, Inc. (NYSE:WM) investors should be aware of an increase in hedge fund interest in recent months. Our calculations also showed that WM 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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 gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the new hedge fund action regarding Waste Management, Inc. (NYSE:WM).

What have hedge funds been doing with Waste Management, Inc. (NYSE:WM)?

At the end of the first quarter, a total of 40 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WM over the last 18 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Michael Larson’s Bill & Melinda Gates Foundation Trust has the number one position in Waste Management, Inc. (NYSE:WM), worth close to $1.7247 billion, corresponding to 9.9% of its total 13F portfolio. On Bill & Melinda Gates Foundation Trust’s heels is AQR Capital Management, led by Cliff Asness, holding a $287.9 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Ian Simm’s Impax Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 9.94% of its 13F portfolio. Valinor Management LLC is also relatively very bullish on the stock, designating 4.51 percent of its 13F equity portfolio to WM.

Consequently, some big names were leading the bulls’ herd. Renaissance Technologies, established the largest position in Waste Management, Inc. (NYSE:WM). Renaissance Technologies had $43.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $7.6 million investment in the stock during the quarter. The other funds with brand new WM positions are Greg Eisner’s Engineers Gate Manager, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Michael Gelband’s ExodusPoint Capital.

Let’s go over hedge fund activity in other stocks similar to Waste Management, Inc. (NYSE:WM). We will take a look at Edwards Lifesciences Corporation (NYSE:EW), L3Harris Technologies, Inc. (NYSE:LHX), Banco Santander, S.A. (NYSE:SAN), and Honda Motor Co Ltd (NYSE:HMC). This group of stocks’ market valuations resemble WM’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EW 49 1405375 4
LHX 43 1593570 -5
SAN 18 348505 -3
HMC 8 144471 -1
Average 29.5 872980 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $873 million. That figure was $2563 million in WM’s case. Edwards Lifesciences Corporation (NYSE:EW) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 8 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately WM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WM were disappointed as the stock returned 15% during the same time period 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 many of these stocks already outperformed the market so far this year.

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