At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
WNS (Holdings) Limited (NYSE: WNS ) has experienced a decrease in hedge fund sentiment of late. WNS was in 14 hedge funds' portfolios at the end of the third quarter of 2018. There were 17 hedge funds in our database with WNS holdings at the end of the previous quarter. Our calculations also showed that WNS isn't among the 30 most popular stocks among hedge funds .
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 18 percentage points since May 2014 through December 3, 2018 ( 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's go over the key hedge fund action surrounding WNS (Holdings) Limited (NYSE: WNS ).
What have hedge funds been doing with WNS (Holdings) Limited (NYSE:WNS)?
Heading into the fourth quarter of 2018, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WNS over the last 13 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Renaissance Technologies held the most valuable stake in WNS (Holdings) Limited (NYSE:WNS), which was worth $69.9 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $34 million worth of shares. Moreover, Sensato Capital Management, Diamond Hill Capital, and Fisher Asset Management were also bullish on WNS (Holdings) Limited (NYSE:WNS), allocating a large percentage of their portfolios to this stock.
Because WNS (Holdings) Limited (NYSE:WNS) has faced declining sentiment from the smart money, it's safe to say that there were a few money managers that decided to sell off their full holdings heading into Q3. Intriguingly, Noam Gottesman's GLG Partners dropped the largest stake of the "upper crust" of funds monitored by Insider Monkey, worth about $19.9 million in stock, and Mike Vranos's Ellington was right behind this move, as the fund dumped about $0.4 million worth. These moves are important to note, as total hedge fund interest dropped by 3 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as WNS (Holdings) Limited (NYSE:WNS) but similarly valued. We will take a look at Avis Budget Group Inc. (NASDAQ: CAR ), Dorman Products Inc. (NASDAQ: DORM ), Five9 Inc (NASDAQ: FIVN ), and Liberty Oilfield Services Inc. (NYSE: LBRT ). This group of stocks' market values resemble WNS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CAR,29,809940,2 DORM,11,72254,1 FIVN,25,463899,-1 LBRT,8,127003,1 Average,18.25,368274,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $179 million in WNS's case. Avis Budget Group Inc. (NASDAQ:CAR) is the most popular stock in this table. On the other hand Liberty Oilfield Services Inc. (NYSE:LBRT) is the least popular one with only 8 bullish hedge fund positions. WNS (Holdings) Limited (NYSE:WNS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. In this regard CAR might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey .