Were Hedge Funds Right About Flocking Into WEX Inc (WEX) ?

Nina Todic

Sat, Apr 20, 2019, 6:40 PM

"Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value," are the words of Maran Capital's Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards WEX Inc (NYSE:WEX) and see how it was affected.

WEX Inc (NYSE:WEX) has seen an increase in support from the world's most elite money managers lately. WEX was in 32 hedge funds' portfolios at the end of December. There were 28 hedge funds in our database with WEX holdings at the end of the previous quarter. Our calculations also showed that WEX isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 20.7% year to date (through March 12th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 32 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Let's take a glance at the recent hedge fund action surrounding WEX Inc (NYSE:WEX).

How are hedge funds trading WEX Inc (NYSE:WEX)?

At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 14% from one quarter earlier. By comparison, 17 hedge funds held shares or bullish call options in WEX a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Paul Reeder and Edward Shapiro's PAR Capital Management has the biggest position in WEX Inc (NYSE:WEX), worth close to $101.5 million, corresponding to 1.7% of its total 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $56.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other members of the smart money that are bullish encompass Mariko Gordon's Daruma Asset Management, Bain Capital's Brookside Capital and Greg Poole's Echo Street Capital Management.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into WEX Inc (NYSE:WEX) headfirst. Millennium Management, managed by Israel Englander, created the most outsized position in WEX Inc (NYSE:WEX). Millennium Management had $8.7 million invested in the company at the end of the quarter. Alexander Charles McAree's Red Cedar Management also made a $5.6 million investment in the stock during the quarter. The following funds were also among the new WEX investors: Joel Greenblatt's Gotham Asset Management, Paul Tudor Jones's Tudor Investment Corp, and Matthew Tewksbury's Stevens Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as WEX Inc (NYSE:WEX) but similarly valued. We will take a look at EQT GP Holdings LP (NYSE:EQGP), Store Capital Corporation (NYSE:STOR), FLIR Systems, Inc. (NASDAQ:FLIR), and Arrow Electronics, Inc. (NYSE:ARW). This group of stocks' market valuations match WEX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EQGP,3,2149,-2 STOR,24,898095,5 FLIR,24,423863,-3 ARW,21,354853,-2 Average,18,419740,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $420 million. That figure was $342 million in WEX's case. Store Capital Corporation (NYSE:STOR) is the most popular stock in this table. On the other hand EQT GP Holdings LP (NYSE:EQGP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks WEX Inc (NYSE:WEX) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 21.3% through April 8th and outperformed the S&P 500 ETF (SPY) by more than 5 percentage points. Hedge funds were also right about betting on WEX as the stock returned 42.4% and outperformed the market as well.

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

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