Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Prudential Public Limited Company (NYSE:PUK) investors should pay attention to an increase in hedge fund interest of late. PUK was in 11 hedge funds’ portfolios at the end of September. There were 5 hedge funds in our database with PUK positions at the end of the previous quarter. Our calculations also showed that PUK 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.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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 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.
Paul Marshall of Marshall Wace
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 review the key hedge fund action regarding Prudential Public Limited Company (NYSE:PUK).
Hedge fund activity in Prudential Public Limited Company (NYSE:PUK)
At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 120% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PUK over the last 17 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Prudential Public Limited Company (NYSE:PUK) was held by Renaissance Technologies, which reported holding $32.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $19.2 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and McKinley Capital Management. In terms of the portfolio weights assigned to each position McKinley Capital Management allocated the biggest weight to Prudential Public Limited Company (NYSE:PUK), around 0.07% of its 13F portfolio. Arrowstreet Capital is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to PUK.
As one would reasonably expect, key money managers have jumped into Prudential Public Limited Company (NYSE:PUK) headfirst. Citadel Investment Group, managed by Ken Griffin, created the most outsized position in Prudential Public Limited Company (NYSE:PUK). Citadel Investment Group had $1.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $0.5 million investment in the stock during the quarter. The following funds were also among the new PUK investors: Dmitry Balyasny’s Balyasny Asset Management, Paul Marshall and Ian Wace’s Marshall Wace, and Mike Vranos’s Ellington.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Prudential Public Limited Company (NYSE:PUK) but similarly valued. These stocks are Micron Technology, Inc. (NASDAQ:MU), Schlumberger Limited. (NYSE:SLB), Bank of Montreal (NYSE:BMO), and Exelon Corporation (NASDAQ:EXC). This group of stocks’ market caps resemble PUK’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MU | 67 | 3620548 | 5 |
| SLB | 49 | 1246666 | 8 |
| BMO | 14 | 393078 | 1 |
| EXC | 34 | 2029376 | 2 |
| Average | 41 | 1822417 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 41 hedge funds with bullish positions and the average amount invested in these stocks was $1822 million. That figure was $58 million in PUK’s case. Micron Technology, Inc. (NASDAQ:MU) is the most popular stock in this table. On the other hand Bank of Montreal (NYSE:BMO) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Prudential Public Limited Company (NYSE:PUK) is even less popular than BMO. Hedge funds clearly dropped the ball on PUK as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 PUK as the stock returned 12% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
