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World Wrestling Entertainment, Inc. (WWE): Are Hedge Funds Right About This Stock?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards World Wrestling Entertainment, Inc. (NYSE:WWE).

World Wrestling Entertainment, Inc. (NYSE:WWE) has experienced a decrease in support from the world’s most elite money managers in recent months. WWE was in 34 hedge funds’ portfolios at the end of September. There were 39 hedge funds in our database with WWE holdings at the end of the previous quarter. Our calculations also showed that WWE isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Lone Pine Capital 2015 Q2 Investor Letter

Stephen Mandel of Lone Pine Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the recent hedge fund action regarding World Wrestling Entertainment, Inc. (NYSE:WWE).

Hedge fund activity in World Wrestling Entertainment, Inc. (NYSE:WWE)

At the end of the third quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in WWE a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

WWE_dec2019

Of the funds tracked by Insider Monkey, Lone Pine Capital, managed by Stephen Mandel, holds the number one position in World Wrestling Entertainment, Inc. (NYSE:WWE). Lone Pine Capital has a $210.5 million position in the stock, comprising 1.2% of its 13F portfolio. On Lone Pine Capital’s heels is Scott Ferguson of Sachem Head Capital, with a $145.9 million position; 11.4% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism contain Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Karthik Sarma’s SRS Investment Management. In terms of the portfolio weights assigned to each position Sachem Head Capital allocated the biggest weight to World Wrestling Entertainment, Inc. (NYSE:WWE), around 11.42% of its portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, setting aside 6.66 percent of its 13F equity portfolio to WWE.

Judging by the fact that World Wrestling Entertainment, Inc. (NYSE:WWE) has faced declining sentiment from the smart money, logic holds that there is a sect of funds who were dropping their full holdings heading into Q4. It’s worth mentioning that Gabriel Plotkin’s Melvin Capital Management sold off the largest stake of the “upper crust” of funds tracked by Insider Monkey, worth about $50.5 million in stock. John Lykouretzos’s fund, Hoplite Capital Management, also dumped its stock, about $33.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to World Wrestling Entertainment, Inc. (NYSE:WWE). These stocks are The Howard Hughes Corporation (NYSE:HHC), IAA, Inc. (NYSE:IAA), KT Corporation (NYSE:KT), and Cullen/Frost Bankers, Inc. (NYSE:CFR). This group of stocks’ market caps match WWE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HHC 25 527177 -1
IAA 31 758086 -11
KT 18 267914 -1
CFR 20 116202 2
Average 23.5 417345 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.5 hedge funds with bullish positions and the average amount invested in these stocks was $417 million. That figure was $1204 million in WWE’s case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand KT Corporation (NYSE:KT) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks World Wrestling Entertainment, Inc. (NYSE:WWE) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WWE wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WWE were disappointed as the stock returned -12.8% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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