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Were Hedge Funds Right About Piling Into WESCO International, Inc. (WCC)?

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 (see why hell is coming). 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 WESCO International, Inc. (NYSE:WCC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

WESCO International, Inc. (NYSE:WCC) has seen an increase in activity from the world’s largest hedge funds of late. WCC was in 32 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with WCC positions at the end of the previous quarter. Our calculations also showed that WCC 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.

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 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.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. 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. With all of this in mind let’s view the latest hedge fund action regarding WESCO International, Inc. (NYSE:WCC).

How are hedge funds trading WESCO International, Inc. (NYSE:WCC)?

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in WCC a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in WESCO International, Inc. (NYSE:WCC), which was worth $48.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $32 million worth of shares. AQR Capital Management, Arrowstreet Capital, and Polaris Capital Management 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 Venator Capital Management allocated the biggest weight to WESCO International, Inc. (NYSE:WCC), around 1.17% of its 13F portfolio. Polaris Capital Management is also relatively very bullish on the stock, setting aside 1.12 percent of its 13F equity portfolio to WCC.

Consequently, some big names were breaking ground themselves. Alpine Associates, managed by Robert Emil Zoellner, initiated the biggest position in WESCO International, Inc. (NYSE:WCC). Alpine Associates had $11.8 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $10.1 million investment in the stock during the quarter. The other funds with new positions in the stock are John Overdeck and David Siegel’s Two Sigma Advisors, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Brandon Osten’s Venator Capital Management.

Let’s also examine hedge fund activity in other stocks similar to WESCO International, Inc. (NYSE:WCC). We will take a look at US Ecology Inc. (NASDAQ:ECOL), Sapiens International Corporation N.V. (NASDAQ:SPNS), Hecla Mining Company (NYSE:HL), and Sirius International Insurance Group, Ltd. (NASDAQ:SG). This group of stocks’ market valuations are similar to WCC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ECOL 22 40929 8
SPNS 10 32545 0
HL 15 55117 1
SG 2 1669 -2
Average 12.25 32565 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $221 million in WCC’s case. US Ecology Inc. (NASDAQ:ECOL) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks WESCO International, Inc. (NYSE:WCC) 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on WCC as the stock returned 53.7% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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