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

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 Willis Towers Watson Public Limited Company (NASDAQ:WLTW) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Willis Towers Watson Public Limited Company (NASDAQ:WLTW) investors should be aware of an increase in hedge fund interest lately. WLTW was in 43 hedge funds’ portfolios at the end of March. There were 35 hedge funds in our database with WLTW positions 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 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.

David Abrams

David Abrams of Abrams 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 take a glance at the recent hedge fund action regarding Willis Towers Watson Public Limited Company (NASDAQ:WLTW).

What have hedge funds been doing with Willis Towers Watson Public Limited Company (NASDAQ:WLTW)?

At the end of the first quarter, a total of 43 of the hedge funds tracked by Insider Monkey were long this stock, a change of 23% from the previous quarter. By comparison, 33 hedge funds held shares or bullish call options in WLTW a year ago. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in Willis Towers Watson Public Limited Company (NASDAQ:WLTW) was held by Cantillon Capital Management, which reported holding $398.9 million worth of stock at the end of September. It was followed by Abrams Capital Management with a $185.8 million position. Other investors bullish on the company included Magnetar Capital, Balyasny Asset Management, and Citadel Investment Group. 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 12.64% of its 13F portfolio. Abrams Capital Management is also relatively very bullish on the stock, earmarking 7.31 percent of its 13F equity portfolio to WLTW.

As one would reasonably expect, specific money managers were breaking ground themselves. Magnetar Capital, managed by Alec Litowitz and Ross Laser, initiated the largest position in Willis Towers Watson Public Limited Company (NASDAQ:WLTW). Magnetar Capital had $172.2 million invested in the company at the end of the quarter. Robert Emil Zoellner’s Alpine Associates also initiated a $43.7 million position during the quarter. The other funds with brand new WLTW positions are Renaissance Technologies, Sahm Adrangi’s Kerrisdale Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Willis Towers Watson Public Limited Company (NASDAQ:WLTW). These stocks are McKesson Corporation (NYSE:MCK), Sirius XM Holdings Inc (NASDAQ:SIRI), Southern Copper Corporation (NYSE:SCCO), and Amphenol Corporation (NYSE:APH). This group of 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
MCK 63 2073564 12
SIRI 36 1134756 5
SCCO 19 134406 -1
APH 42 604137 6
Average 40 986716 5.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 40 hedge funds with bullish positions and the average amount invested in these stocks was $987 million. That figure was $1654 million in WLTW’s case. McKesson Corporation (NYSE:MCK) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 19 bullish hedge fund positions. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) 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 WLTW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WLTW were disappointed as the stock returned 16.4% 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.