One of the losers during the Wednesday trading session is Genworth Financial Inc (NYSE:GNW), whose stock fell by 15%. The decline comes as the company missed the earnings and revenue estimates for the second quarter. The insurance giant reported a net income of $119 million or $0.24 per share, versus estimates of $0.25 per share. The insurance company also posted a total revenue of $2.16 billion, $240 million lower than Street’s expectation. Genworth Financial Inc (NYSE:GNW) pointed out that both mortgage insurance division and U.S. life division incomes dropped year-over-year by 19% and 17% respectively, which had a negative effect on the revenues for the company during the second quarter.
“We are encouraged with our second quarter results in the Global Mortgage Insurance Division and remain focused on initiatives aimed at strengthening and improving U.S. Life Insurance Division results,” Genworth’s CEO Tom McInerney was quoted as saying in a company statement
However, despite lower-than-expect results, Macquarie has upgraded the Genworth Financial Inc (NYSE:GNW) stock to ‘Neutral’ from ‘UnderPerform’ in a report released by earlier today, while BTIG Research has reiterated a ‘Buy’ rating on the stock with a price target of $15.
Considering the fact that Genworth Financial Inc (NYSE:GNW) lost around 14% in the first three months, a 20% reduction in aggregate value of hedge funds’ holding the stock during the same period suggests that hedge funds opted to withdraw some capital out of Genworth during the first trimester. In addition, the number of investors holding shares declined to 29 by the end of March, as opposed to 36 a quarter earlier.
Most investors don’t understand hedge funds and indicators that are based on their activity. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Their fees are also very large and reduce the net returns. We uncovered that some of hedge funds’ long positions actually outperformed the market. For instance, 15 most popular small-cap stocks among funds have beaten the S&P 500 Index by more than 65 percentage points since the end of August 2012, having returned a cumulative 123% (read more details). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
With this in mind, let’s take a glance at the fresh hedge fund action encompassing Genworth Financial Inc (NYSE:GNW).
Hedge fund activity in Genworth Financial Inc (NYSE:GNW)
Among the funds tracked by Insider Monkey, Bill Miller‘s Legg Mason Capital Management held the largest position in Genworth Financial Inc (NYSE:GNW) by the end of first quarter, with around 9.2 million shares valued at $66.9 million. Richard Pzena’s Pzena Investment Management and Jim Simons‘ Renaissance Technologies held the second and third largest stakes with 6.5 million and 4.7 million shares respectively. Pzena has increased his holding in the company by 93% during the first quarter, whereas Simons upped his position by 55%. Zac Hirzel’s Hirzel Capital Management opened a new position in the stock by acquiring around 3.4 million shares during the first trimester.
On the other hand, a number of investors significantly reduced their positions in Genworth during the January – March period. Among them are Ken Griffin’s Citadel Investment Group and David Shaw’s D.E. Shaw & Co., which unloaded some 936,800 shares and 784,900 shares respectively. Citadel and D.E. Shaw owned some 1.10 million shares and 1.67 million shares respectively, according to their latest 13F filings.
As the stock drops in value, can we see this as an opportunity to get into the stock? Considering the bearish hedge fund sentiment coupled with second quarter earnings miss, we don’t recommend to buy this stock at the moment.
Disclosure: None
