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Were Hedge Funds Right About Souring On Willis Towers Watson (WLTW)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Willis Towers Watson Public Limited Company (NASDAQ:WLTW) in this article.

Willis Towers Watson Public Limited Company (NASDAQ:WLTW) investors should pay attention to a decrease in hedge fund interest recently. WLTW was in 35 hedge funds’ portfolios at the end of December. There were 39 hedge funds in our database with WLTW holdings at the end of the previous quarter. Our calculations also showed that WLTW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

William Von Mueffling - Cantillon Capital Management

William Von Mueffling of Cantillon Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the latest hedge fund action regarding Willis Towers Watson Public Limited Company (NASDAQ:WLTW).

Hedge fund activity in Willis Towers Watson Public Limited Company (NASDAQ:WLTW)

At Q4’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -10% from the third quarter of 2019. On the other hand, there were a total of 25 hedge funds with a bullish position in WLTW a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is WLTW A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Cantillon Capital Management, managed by William von Mueffling, holds the biggest position in Willis Towers Watson Public Limited Company (NASDAQ:WLTW). Cantillon Capital Management has a $474.9 million position in the stock, comprising 4.4% of its 13F portfolio. The second largest stake is held by Ken Griffin of Citadel Investment Group, with a $313 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other professional money managers that are bullish include David Abrams’s Abrams Capital Management, Ric Dillon’s Diamond Hill Capital and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Permian Investment Partners allocated the biggest weight to Willis Towers Watson Public Limited Company (NASDAQ:WLTW), around 19.28% of its 13F portfolio. Capital Returns Management is also relatively very bullish on the stock, earmarking 7.8 percent of its 13F equity portfolio to WLTW.

Seeing as Willis Towers Watson Public Limited Company (NASDAQ:WLTW) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedgies that elected to cut their entire stakes last quarter. Intriguingly, John Smith Clark’s Southpoint Capital Advisors dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising close to $96.5 million in call options. Dmitry Balyasny’s fund, Balyasny Asset Management, also dumped its call options, about $10.2 million worth. These moves are interesting, as total hedge fund interest dropped by 4 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Willis Towers Watson Public Limited Company (NASDAQ:WLTW). We will take a look at PPL Corporation (NYSE:PPL), ViacomCBS Inc. (NASDAQ:VIAC), Archer Daniels Midland Company (NYSE:ADM), and Fortive Corporation (NYSE:FTV). All of these stocks’ market caps are similar to WLTW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PPL 32 598981 5
VIAC 64 3293442 22
ADM 28 712255 5
FTV 43 1260211 7
Average 41.75 1466222 9.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.75 hedge funds with bullish positions and the average amount invested in these stocks was $1466 million. That figure was $1953 million in WLTW’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand Archer Daniels Midland Company (NYSE:ADM) is the least popular one with only 28 bullish hedge fund positions. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but still beat the market by 3.1 percentage points. A small number of hedge funds were also right about betting on WLTW as the stock returned -6.8% during the same time period and outperformed the market by an even larger margin.

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

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