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. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of AFLAC Incorporated (NYSE:AFL).
AFLAC Incorporated (NYSE:AFL) was in 32 hedge funds’ portfolios at the end of the fourth quarter of 2019. AFL investors should be aware of an increase in hedge fund interest in recent months. There were 31 hedge funds in our database with AFL holdings at the end of the previous quarter. Our calculations also showed that AFL 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 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 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Bruce Kovner of Caxton Associates LP
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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a gander at the fresh hedge fund action surrounding AFLAC Incorporated (NYSE:AFL).
Hedge fund activity in AFLAC Incorporated (NYSE:AFL)
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in AFL over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, AQR Capital Management held the most valuable stake in AFLAC Incorporated (NYSE:AFL), which was worth $202.8 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $85.9 million worth of shares. Ariel Investments, Adage Capital Management, and Citadel Investment Group 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 Arjuna Capital allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 2.04% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, setting aside 1.94 percent of its 13F equity portfolio to AFL.
As industrywide interest jumped, key hedge funds were breaking ground themselves. D E Shaw, managed by D. E. Shaw, created the most outsized position in AFLAC Incorporated (NYSE:AFL). D E Shaw had $2.6 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also made a $2 million investment in the stock during the quarter. The following funds were also among the new AFL investors: Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Alec Litowitz and Ross Laser’s Magnetar Capital, and Bruce Kovner’s Caxton Associates LP.
Let’s check out hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). These stocks are Orange S.A. (NYSE:ORAN), Valero Energy Corporation (NYSE:VLO), Canadian Natural Resources Limited (NYSE:CNQ), and Dell Technologies Inc. (NYSE:DELL). All of these stocks’ market caps resemble AFL’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORAN | 2 | 606 | -2 |
| VLO | 46 | 636299 | 9 |
| CNQ | 29 | 530611 | -5 |
| DELL | 41 | 2361969 | -6 |
| Average | 29.5 | 882371 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $882 million. That figure was $512 million in AFL’s case. Valero Energy Corporation (NYSE:VLO) is the most popular stock in this table. On the other hand Orange S.A. (NYSE:ORAN) is the least popular one with only 2 bullish hedge fund positions. AFLAC Incorporated (NYSE:AFL) 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 AFL wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AFL were disappointed as the stock returned -29.8% 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.
