Were Hedge Funds Wrong About Piling Into Winnebago Industries, Inc. (WGO)?

In this article we will check out the progression of hedge fund sentiment towards Winnebago Industries, Inc. (NYSE:WGO) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Winnebago Industries, Inc. (NYSE:WGO) has seen an increase in hedge fund interest recently. Winnebago Industries, Inc. (NYSE:WGO) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 23. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 19 hedge funds in our database with WGO positions at the end of the first quarter. Our calculations also showed that WGO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Ken Heebner of Capital Growth Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we’re going to take a gander at the latest hedge fund action surrounding Winnebago Industries, Inc. (NYSE:WGO).

Hedge fund activity in Winnebago Industries, Inc. (NYSE:WGO)

At second quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 74% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in WGO over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Winnebago Industries, Inc. (NYSE:WGO). Fisher Asset Management has a $70.3 million position in the stock, comprising 0.1% of its 13F portfolio. The second largest stake is held by Punch Card Capital, led by Norbest Lou, holding a $68.1 million position; 30.1% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism comprise Paul Marshall and Ian Wace’s Marshall Wace LLP, Chuck Royce’s Royce & Associates and Ken Heebner’s Capital Growth Management. In terms of the portfolio weights assigned to each position Punch Card Capital allocated the biggest weight to Winnebago Industries, Inc. (NYSE:WGO), around 30.06% of its 13F portfolio. Capital Growth Management is also relatively very bullish on the stock, earmarking 3.06 percent of its 13F equity portfolio to WGO.

Consequently, specific money managers were breaking ground themselves. Fisher Asset Management, managed by Ken Fisher, assembled the most outsized position in Winnebago Industries, Inc. (NYSE:WGO). Fisher Asset Management had $70.3 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $43.1 million investment in the stock during the quarter. The following funds were also among the new WGO investors: Ken Heebner’s Capital Growth Management, Steve Cohen’s Point72 Asset Management, and Brad Farber’s Atika Capital.

Let’s go over hedge fund activity in other stocks similar to Winnebago Industries, Inc. (NYSE:WGO). We will take a look at Harmony Gold Mining Company Limited (NYSE:HMY), First Hawaiian, Inc. (NASDAQ:FHB), CNO Financial Group Inc (NYSE:CNO), Acadia Healthcare Company Inc (NASDAQ:ACHC), FormFactor, Inc. (NASDAQ:FORM), IGM Biosciences, Inc. (NASDAQ:IGMS), and Bottomline Technologies (de), Inc. (NASDAQ:EPAY). This group of stocks’ market valuations match WGO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HMY 10 85944 1
FHB 21 147277 0
CNO 18 287275 3
ACHC 23 381810 -1
FORM 23 113808 1
IGMS 16 679671 2
EPAY 18 116704 0
Average 18.4 258927 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.4 hedge funds with bullish positions and the average amount invested in these stocks was $259 million. That figure was $366 million in WGO’s case. Acadia Healthcare Company Inc (NASDAQ:ACHC) is the most popular stock in this table. On the other hand Harmony Gold Mining Company Limited (NYSE:HMY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Winnebago Industries, Inc. (NYSE:WGO) is more popular among hedge funds. Our overall hedge fund sentiment score for WGO is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately WGO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WGO were disappointed as the stock returned -29.4% since the end of the second quarter (through 10/30) 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.