Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The last 12 months is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Metlife Inc (NYSE:MET).
Is Metlife Inc (NYSE:MET) undervalued? The smart money is in a bearish mood. The number of long hedge fund bets were trimmed by 5 lately. Our calculations also showed that MET isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the fresh hedge fund action encompassing Metlife Inc (NYSE:MET).
Hedge fund activity in Metlife Inc (NYSE:MET)
At Q2’s end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -16% from the first quarter of 2019. On the other hand, there were a total of 26 hedge funds with a bullish position in MET a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
The largest stake in Metlife Inc (NYSE:MET) was held by Diamond Hill Capital, which reported holding $493.5 million worth of stock at the end of March. It was followed by Pzena Investment Management with a $362.5 million position. Other investors bullish on the company included AQR Capital Management, Arrowstreet Capital, and Millennium Management.
Seeing as Metlife Inc (NYSE:MET) has experienced bearish sentiment from the smart money, it’s easy to see that there were a few funds that slashed their full holdings last quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth about $17.9 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund cut about $7.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 5 funds last quarter.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Metlife Inc (NYSE:MET) but similarly valued. We will take a look at Kinder Morgan Inc (NYSE:KMI), Exelon Corporation (NASDAQ:EXC), Aon plc (NYSE:AON), and Marriott International Inc (NASDAQ:MAR). All of these stocks’ market caps are closest to MET’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KMI | 37 | 1685778 | 1 |
| EXC | 32 | 1990186 | -1 |
| AON | 34 | 2527721 | -5 |
| MAR | 27 | 2521738 | 2 |
| Average | 32.5 | 2181356 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $2181 million. That figure was $1499 million in MET’s case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Marriott International Inc (NASDAQ:MAR) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Metlife Inc (NYSE:MET) is even less popular than MAR. Hedge funds dodged a bullet by taking a bearish stance towards MET. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MET wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MET investors were disappointed as the stock returned -4.2% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
