Did Hedge Funds Make The Right Call On AFLAC Incorporated (AFL) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded AFLAC Incorporated (NYSE:AFL) and determine whether the smart money was really smart about this stock.

Hedge fund interest in AFLAC Incorporated (NYSE:AFL) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as DexCom, Inc. (NASDAQ:DXCM), China Telecom Corporation Limited (NYSE:CHA), and Lululemon Athletica inc. (NASDAQ:LULU) to gather more data points. Our calculations also showed that AFL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the fresh hedge fund action surrounding AFLAC Incorporated (NYSE:AFL).

What have hedge funds been doing with AFLAC Incorporated (NYSE:AFL)?

Heading into the second quarter of 2020, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AFL over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in AFLAC Incorporated (NYSE:AFL) was held by Citadel Investment Group, which reported holding $146.6 million worth of stock at the end of September. It was followed by Ariel Investments with a $54.4 million position. Other investors bullish on the company included AQR Capital Management, Millennium Management, and Adage Capital Management. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 2.09% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, dishing out 1.53 percent of its 13F equity portfolio to AFL.

Due to the fact that AFLAC Incorporated (NYSE:AFL) has faced falling interest from the smart money, we can see that there was a specific group of money managers who were dropping their positions entirely heading into Q4. It’s worth mentioning that George Soros’s Soros Fund Management dropped the largest stake of the 750 funds monitored by Insider Monkey, totaling about $4.6 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also cut its stock, about $2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). We will take a look at DexCom, Inc. (NASDAQ:DXCM), China Telecom Corporation Limited (NYSE:CHA), Lululemon Athletica inc. (NASDAQ:LULU), and MSCI Inc (NYSE:MSCI). This group of stocks’ market values resemble AFL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $667 million. That figure was $387 million in AFL’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. AFLAC Incorporated (NYSE:AFL) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately AFL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AFL investors were disappointed as the stock returned 6.1% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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