Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards The Allstate Corporation (NYSE:ALL).
The Allstate Corporation (NYSE:ALL) was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. ALL investors should be aware of a decrease in enthusiasm from smart money of late. There were 48 hedge funds in our database with ALL positions at the end of the previous quarter. Our calculations also showed that ALL isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s analyze the key hedge fund action surrounding The Allstate Corporation (NYSE:ALL).
How are hedge funds trading The Allstate Corporation (NYSE:ALL)?
At the end of the fourth quarter, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. By comparison, 34 hedge funds held shares or bullish call options in ALL a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in The Allstate Corporation (NYSE:ALL), which was worth $689.8 million at the end of the third quarter. On the second spot was GLG Partners which amassed $206.5 million worth of shares. Two Sigma Advisors, Senator Investment Group, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Senator Investment Group allocated the biggest weight to The Allstate Corporation (NYSE:ALL), around 3.85% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, designating 2.48 percent of its 13F equity portfolio to ALL.
Because The Allstate Corporation (NYSE:ALL) has faced falling interest from the aggregate hedge fund industry, we can see that there was a specific group of funds that slashed their positions entirely heading into Q4. Intriguingly, Ken Griffin’s Citadel Investment Group dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at close to $196.1 million in stock, and Steven Richman’s East Side Capital (RR Partners) was right behind this move, as the fund dropped about $30.1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 11 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as The Allstate Corporation (NYSE:ALL) but similarly valued. These stocks are Constellation Brands, Inc. (NYSE:STZ), Telefonica S.A. (NYSE:TEF), Thomson Reuters Corporation (NYSE:TRI), and Newmont Corporation (NYSE:NEM). This group of stocks’ market caps are similar to ALL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| STZ | 52 | 1980100 | 6 |
| TEF | 9 | 36499 | 4 |
| TRI | 21 | 343733 | 0 |
| NEM | 34 | 990094 | -10 |
| Average | 29 | 837607 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $838 million. That figure was $1713 million in ALL’s case. Constellation Brands, Inc. (NYSE:STZ) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 9 bullish hedge fund positions. The Allstate Corporation (NYSE:ALL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but beat the market by 3.1 percentage points. Unfortunately ALL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ALL were disappointed as the stock returned -17.1% during the same time period 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
