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Wayfair Inc (W) Fell Out Of Favor With Hedge Funds

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Is Wayfair Inc (NYSE:W) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Wayfair Inc (NYSE:W) worth your attention right now? Money managers were in a bearish mood. The number of bullish hedge fund positions shrunk by 2 recently. Wayfair Inc (NYSE:W) was in 35 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 41. Our calculations also showed that W isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 37 hedge funds in our database with W positions at the end of the first quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's take a look at the fresh hedge fund action regarding Wayfair Inc (NYSE:W).

Do Hedge Funds Think W Is A Good Stock To Buy Now?

At the end of June, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards W over the last 24 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is W A Good Stock To Buy?
Is W A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Zachary Sternberg and Benjamin Stein's Spruce House Investment Management has the most valuable position in Wayfair Inc (NYSE:W), worth close to $1.5154 billion, amounting to 36.2% of its total 13F portfolio. On Spruce House Investment Management's heels is Brian Bares of Bares Capital Management, with a $795.8 million position; 14.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Alex Sacerdote's Whale Rock Capital Management, and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Spruce House Investment Management allocated the biggest weight to Wayfair Inc (NYSE:W), around 36.17% of its 13F portfolio. Bares Capital Management is also relatively very bullish on the stock, setting aside 14.15 percent of its 13F equity portfolio to W.

Since Wayfair Inc (NYSE:W) has faced bearish sentiment from hedge fund managers, it's easy to see that there was a specific group of fund managers who were dropping their positions entirely heading into Q3. At the top of the heap, Highbridge Capital Management sold off the largest investment of the 750 funds followed by Insider Monkey, comprising close to $40.7 million in stock. Eric Bannasch's fund, Cadian Capital, also dumped its stock, about $31.5 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds heading into Q3.

Let's go over hedge fund activity in other stocks similar to Wayfair Inc (NYSE:W). We will take a look at Cloudflare, Inc. (NYSE:NET), Liberty Broadband Corp (NASDAQ:LBRDK), STMicroelectronics N.V. (NYSE:STM), CoStar Group Inc (NASDAQ:CSGP), Corteva, Inc. (NYSE:CTVA), D.R. Horton, Inc. (NYSE:DHI), and Williams Companies, Inc. (NYSE:WMB). This group of stocks' market values match W's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NET,43,862578,-2 LBRDK,63,7386186,-7 STM,13,159058,-2 CSGP,49,2816593,6 CTVA,34,1283913,-1 DHI,45,1886955,-5 WMB,39,551010,5 Average,40.9,2135185,-0.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $2135 million. That figure was $3903 million in W's case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 13 bullish hedge fund positions. Wayfair Inc (NYSE:W) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for W is 50.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately W wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); W investors were disappointed as the stock returned -25.8% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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