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WSFS Financial Corporation (WSFS): Hedge Funds Started to Cash Out Too Early

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like WSFS Financial Corporation (NASDAQ:WSFS).

WSFS Financial Corporation (NASDAQ:WSFS) was in 15 hedge funds’ portfolios at the end of June. WSFS shareholders have witnessed a decrease in hedge fund sentiment recently. There were 20 hedge funds in our database with WSFS positions at the end of the previous quarter. Our calculations also showed that WSFS isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

WSFS_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the new hedge fund action surrounding WSFS Financial Corporation (NASDAQ:WSFS).

Hedge fund activity in WSFS Financial Corporation (NASDAQ:WSFS)

Heading into the third quarter of 2019, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WSFS over the last 16 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

John Overdeck of Two Sigma

Among these funds, Renaissance Technologies held the most valuable stake in WSFS Financial Corporation (NASDAQ:WSFS), which was worth $98 million at the end of the second quarter. On the second spot was Pzena Investment Management which amassed $27.4 million worth of shares. Moreover, Royce & Associates, Two Sigma Advisors, and Swift Run Capital Management were also bullish on WSFS Financial Corporation (NASDAQ:WSFS), allocating a large percentage of their portfolios to this stock.

Because WSFS Financial Corporation (NASDAQ:WSFS) has faced declining sentiment from the smart money, it’s safe to say that there exists a select few fund managers who sold off their entire stakes by the end of the second quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $9.2 million in stock. Minhua Zhang’s fund, Weld Capital Management, also sold off its stock, about $1 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds by the end of the second quarter.

Let’s go over hedge fund activity in other stocks similar to WSFS Financial Corporation (NASDAQ:WSFS). These stocks are Washington Real Estate Investment Trust (NYSE:WRE), Seaspan Corporation (NYSE:SSW), Sprouts Farmers Market Inc (NASDAQ:SFM), and Belden Inc. (NYSE:BDC). This group of stocks’ market caps are closest to WSFS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WRE 6 102375 -3
SSW 7 780442 -2
SFM 22 259090 1
BDC 15 81149 -1
Average 12.5 305764 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $306 million. That figure was $164 million in WSFS’s case. Sprouts Farmers Market Inc (NASDAQ:SFM) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 6 bullish hedge fund positions. WSFS Financial Corporation (NASDAQ:WSFS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on WSFS as the stock returned 7.1% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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