Did Hedge Funds Make The Right Call On Unum Group (UNM) ?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Unum Group (NYSE:UNM) based on that data and determine whether they were really smart about the stock.

Unum Group (NYSE:UNM) shareholders have witnessed a decrease in hedge fund interest lately. Our calculations also showed that UNM 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.

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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.

Joel Greenblatt of Gotham Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s go over the key hedge fund action encompassing Unum Group (NYSE:UNM).

How are hedge funds trading Unum Group (NYSE:UNM)?

At Q1’s end, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UNM over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Unum Group (NYSE:UNM), which was worth $63.8 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $27.4 million worth of shares. Two Sigma Advisors, D E Shaw, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Arrowstreet Capital allocated the biggest weight to Unum Group (NYSE:UNM), around 0.18% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, setting aside 0.13 percent of its 13F equity portfolio to UNM.

Seeing as Unum Group (NYSE:UNM) has faced bearish sentiment from the smart money, we can see that there were a few hedge funds that slashed their positions entirely by the end of the first quarter. Interestingly, David Harding’s Winton Capital Management said goodbye to the biggest investment of the “upper crust” of funds tracked by Insider Monkey, totaling an estimated $15.7 million in stock. Minhua Zhang’s fund, Weld Capital Management, also sold off its stock, about $3.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Unum Group (NYSE:UNM) but similarly valued. These stocks are Rayonier Inc. (NYSE:RYN), Community Bank System, Inc. (NYSE:CBU), MSC Industrial Direct Co Inc (NYSE:MSM), and SLM Corp (NASDAQ:SLM). This group of stocks’ market values match UNM’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $239 million. That figure was $160 million in UNM’s case. SLM Corp (NASDAQ:SLM) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 11 bullish hedge fund positions. Unum Group (NYSE:UNM) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 but beat the market by 15.5 percentage points. Unfortunately UNM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on UNM were disappointed as the stock returned 12.7% during the same time period 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 many of these stocks already outperformed the market so far this year.

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