Hedge Funds Are Dumping Genworth Financial Inc (GNW)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

Genworth Financial Inc (NYSE:GNW) has seen a decrease in hedge fund sentiment in recent months. GNW was in 18 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with GNW positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Primerica, Inc. (NYSE:PRI), Minerals Technologies Inc (NYSE:MTX), and Entegris Inc (NASDAQ:ENTG) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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What does the smart money think about Genworth Financial Inc (NYSE:GNW)?

At the end of the third quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decrease of 18% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GNW over the last 5 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Christopher Pucillo’s Solus Alternative Asset Management has the largest position in Genworth Financial Inc (NYSE:GNW), worth close to $73.4 million, comprising 20.4% of its total 13F portfolio. On Solus Alternative Asset Management’s heels is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $42.9 million position. Some other hedge funds and institutional investors that are bullish include Richard S. Pzena’s Pzena Investment Management, Himanshu H. Shah’s Shah Capital Management and D. E. Shaw’s D E Shaw. We should note that Shah Capital Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cut their entire stakes in the stock during the third quarter. At the top of the heap, Glenn Russell Dubin’s Highbridge Capital Management cut the biggest investment of all the investors followed by Insider Monkey, comprising close to $3.4 million in stock, and David Costen Haley’s HBK Investments was right behind this move, as the fund cut about $2.1 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Genworth Financial Inc (NYSE:GNW) but similarly valued. These stocks are Primerica, Inc. (NYSE:PRI), Minerals Technologies Inc (NYSE:MTX), Entegris Inc (NASDAQ:ENTG), and Allscripts Healthcare Solutions Inc (NASDAQ:MDRX). All of these stocks’ market caps match GNW’s market cap.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $212 million in GNW’s case. Allscripts Healthcare Solutions Inc (NASDAQ:MDRX) is the most popular stock in this table. On the other hand Primerica, Inc. (NYSE:PRI) is the least popular one with only 17 bullish hedge fund positions. Genworth Financial Inc (NYSE:GNW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard MDRX might be a better candidate to consider taking a long position in.

Disclosure: None