Published on 1 Nov 2021 on Insider Monkey via Yahoo Finance
Was The Smart Money Right About Western Digital Corporation (WDC)?
Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Western Digital Corporation (NASDAQ:WDC) to find out whether there were any major changes in hedge funds' views.
Is Western Digital Corporation (NASDAQ:WDC) going to take off soon? The smart money was becoming less hopeful. The number of bullish hedge fund bets were cut by 1 recently. Western Digital Corporation (NASDAQ:WDC) was in 57 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 58. Our calculations also showed that WDC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 58 hedge funds in our database with WDC positions at the end of the first quarter.
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 79 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.