It seems that the masses and most of the financial media hate hedge funds and what they do, but why is this hatred of hedge funds so prominent? At the end of the day, these asset management firms do not gamble the hard-earned money of the people who are on the edge of poverty. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. The Standard and Poor’s 500 Total Return Index ETFs returned approximately 27.5% in 2019 (through the end of November). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 37.4% during the same 11-month period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like CNO Financial Group Inc (NYSE:CNO).
CNO Financial Group Inc (NYSE:CNO) investors should be aware of an increase in support from the world’s most elite money managers in recent months. Our calculations also showed that CNO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard S. Pzena of Pzena Investment Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to check out the new hedge fund action surrounding CNO Financial Group Inc (NYSE:CNO).
How have hedgies been trading CNO Financial Group Inc (NYSE:CNO)?
Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CNO over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Pzena Investment Management was the largest shareholder of CNO Financial Group Inc (NYSE:CNO), with a stake worth $79.9 million reported as of the end of September. Trailing Pzena Investment Management was Millennium Management, which amassed a stake valued at $26.2 million. Huber Capital Management, AQR Capital Management, and Citadel Investment Group 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 Huber Capital Management allocated the biggest weight to CNO Financial Group Inc (NYSE:CNO), around 2.65% of its 13F portfolio. Pzena Investment Management is also relatively very bullish on the stock, designating 0.43 percent of its 13F equity portfolio to CNO.
As one would reasonably expect, specific money managers have been driving this bullishness. Tudor Investment Corp, managed by Paul Tudor Jones, established the biggest position in CNO Financial Group Inc (NYSE:CNO). Tudor Investment Corp had $0.4 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Paul Marshall and Ian Wace’s Marshall Wace.
Let’s now take a look at 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), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), Yelp Inc (NYSE:YELP), and Carpenter Technology Corporation (NYSE:CRS). This group of stocks’ market caps match CNO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ITGR | 16 | 173882 | -2 |
| RARE | 18 | 186654 | 2 |
| YELP | 26 | 417929 | -1 |
| CRS | 13 | 72105 | 1 |
| Average | 18.25 | 212643 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $213 million. That figure was $195 million in CNO’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Carpenter Technology Corporation (NYSE:CRS) is the least popular one with only 13 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 calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CNO as the stock returned 14.5% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
