One of the noteworthy movers today is Genworth Financial Inc (NYSE:GNW), whose stock gained around 12% on Monday amid news that the insurer may be in talks to sell its stake in Genworth Mortgage Insurance Australia (GMA), its Australian subsidiary. The Australian reports that “investors have been taking calls from banks about the exit, which sources believe may be imminent.” Genworth Financial owns about 50% of GMA, after it sold a 14% stake for $280 million last May, and now it looks as though the firm may be looking to divest all of its take in the subsidiary. Last week, Genworth Financial Inc (NYSE:GNW)’s stock lost 13% after its missed Wall Street’s expectations for the second quarter. Genworth reported earnings of $119 million, or $0.24 per share, on revenues of $2.16 billion, below the consensus estimate of $0.25 earnings per share on revenues of $2.4 billion. The biggest drag to the firm’s performance in the second quarter were the 19% and 17% profit drops in their mortgage insurance division and U.S. life insurance division.
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So, today’s appreciation could offset slightly the stock’s fall from last week. However, Genworth is still down by more than 40% year-to-date. During the first quarter, the stock saw a withdrawal of capital from hedge funds, which shows that smart money might have anticipated the downtrend. We follow hedge funds because our research has shown that their stock picks historically managed to generate alpha even though the filings are up to 45-days delayed. We used a 60-day delay in our back tests to be on the safe side and our research showed that the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by an average of 95 basis points per month between 1999 and 2012. After adjusting for risk, our calculations revealed that these stocks’ monthly alpha was 80 basis points. We have also been sharing and tracking the performance of these small-cap picks since the end of August 2012 and during this period they have returned 123.1%, outperforming the S&P500 ETF (SPY) by nearly 66.5 percentage points (see more details here).
Insider Monkey also tracks insider trades to get an idea about the attitude of insiders about a company. There have been no insider sales of Genworth shares since December, 2013, but President and Chief Executive Officer Thomas McInerney and Chief Financial Officer Martin Klein acquired 30,000 and 15,000 shares on August 7, respectively. On the other hand, hedge funds have been more active in Genworth Financial in the last couple of months and in the next paragraph we will take a closer look at their sentiment about the company.
How are hedge funds trading Genworth Financial Inc (NYSE:GNW)?
The overall sentiment among hedge funds we track is that Genworth Financial Inc (NYSE:GNW) is not a good stock to buy. At the end of March, 29 investors held long positions representing $315.3 million worth of stock. It’s important to mention that during the first three months of the year, the number of funds holding shares declined by seven, while the aggregate value of their stakes fell by 20.13%. The stock only declined by 14% in the first quarter, which means hedge funds were reducing their stakes in the company. Nonetheless, a substantial 8.69% of the firm’s outstanding stock is owned by hedge funds from our database.
Richard S. Pzena’s Pzena Investment Management increased its position to 7.72 million shares during the second quarter from 6.51 million shares a quarter earlier. However, at the end of March, the largest shareholder from our database was Bill Miller’s Legg Mason Capital Management, which owned 9.16 million shares. In addition, during the first quarter, Zac Hirzel’s Hirzel Capital Management initiated the largest position in Genworth Financial, buying 3.43 million shares.
Even though today’s news marked an increase for Genworth Financial Inc (NYSE:GNW)’s stock, we still don’t consider that the company represents a good long-term investment, since it has to further improve its financial situation.
Disclosure: None
