Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CNO Financial Group Inc (NYSE:CNO).
Is CNO Financial Group Inc (NYSE:CNO) a buy right now? Hedge funds were turning bullish. The number of bullish hedge fund bets rose by 3 recently. CNO Financial Group Inc (NYSE:CNO) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistic is 23. Our calculations also showed that CNO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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.
Israel Englander of Millennium Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now let’s take a look at the recent hedge fund action regarding CNO Financial Group Inc (NYSE:CNO).
Do Hedge Funds Think CNO Is A Good Stock To Buy Now?
Heading into the third quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CNO over the last 24 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Richard S. Pzena’s Pzena Investment Management has the largest position in CNO Financial Group Inc (NYSE:CNO), worth close to $166 million, amounting to 0.6% of its total 13F portfolio. Coming in second is Paradice Investment Management, managed by David Paradice, which holds a $103.5 million position; the fund has 4.8% of its 13F portfolio invested in the stock. Some other peers that hold long positions comprise Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Israel Englander’s Millennium Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to CNO Financial Group Inc (NYSE:CNO), around 4.8% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, setting aside 3.12 percent of its 13F equity portfolio to CNO.
As aggregate interest increased, some big names were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in CNO Financial Group Inc (NYSE:CNO). Citadel Investment Group had $4.1 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $1.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates LP, Michael Gelband’s ExodusPoint Capital, and Renee Yao’s Neo Ivy Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as CNO Financial Group Inc (NYSE:CNO) but similarly valued. These stocks are Integer Holdings Corporation (NYSE:ITGR), GrafTech International Ltd. (NYSE:EAF), 2U Inc (NASDAQ:TWOU), Phreesia, Inc. (NYSE:PHR), Pebblebrook Hotel Trust (NYSE:PEB), Livent Corporation (NYSE:LTHM), and American Equity Investment Life Holding Company (NYSE:AEL). This group of stocks’ market valuations match CNO’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITGR | 23 | 200458 | 7 |
| EAF | 36 | 377086 | -2 |
| TWOU | 25 | 757888 | 2 |
| PHR | 26 | 226853 | -1 |
| PEB | 17 | 57810 | 7 |
| LTHM | 27 | 251159 | 5 |
| AEL | 20 | 187474 | -4 |
| Average | 24.9 | 294104 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.9 hedge funds with bullish positions and the average amount invested in these stocks was $294 million. That figure was $363 million in CNO’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 17 bullish hedge fund positions. CNO Financial Group Inc (NYSE:CNO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CNO is 45.9. 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. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on CNO as the stock returned 9.7% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.
Follow Cno Financial Group Inc. (NYSE:CNO)
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Disclosure: None. This article was originally published at Insider Monkey.
