Hedge funds are known to underperform the bull markets but that’s not because they are bad at investing. Truth be told, most hedge fund managers and other smaller players within this industry are very smart and skilled investors. Of course, they may also make wrong bets in some instances, but no one knows what the future holds and how market participants will react to the bountiful news that floods in each day. Hedge funds underperform because they are hedged. The Standard and Poor’s 500 Index returned approximately 20% in the first 9 months of this year through September 30th (including dividend payments). Conversely, hedge funds’ top 20 large-cap stock picks generated a return of 24% during the same 9-month period. An average long/short hedge fund returned only a fraction of this due to the hedges they implement and the large fees they charge. Our research covering the last 18 years indicates that investors can outperform the market by imitating hedge funds’ consensus stock picks rather than directly investing in hedge funds. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like UMB Financial Corporation (NASDAQ:UMBF).
Is UMB Financial Corporation (NASDAQ:UMBF) a worthy investment today? The best stock pickers are buying. The number of bullish hedge fund bets moved up by 7 in recent months. Our calculations also showed that UMBF isn’t among the 30 most popular stocks among hedge funds (view the video below). UMBF was in 16 hedge funds’ portfolios at the end of June. There were 9 hedge funds in our database with UMBF positions at the end of the previous quarter.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s take a peek at the new hedge fund action encompassing UMB Financial Corporation (NASDAQ:UMBF).
Hedge fund activity in UMB Financial Corporation (NASDAQ:UMBF)
At Q2’s end, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 78% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards UMBF over the last 16 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Fisher’s Fisher Asset Management has the largest position in UMB Financial Corporation (NASDAQ:UMBF), worth close to $21.7 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $16 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish comprise Martin Whitman’s Third Avenue Management, Ken Griffin’s Citadel Investment Group and Renaissance Technologies.
Consequently, some big names were breaking ground themselves. Millennium Management, managed by Israel Englander, assembled the largest position in UMB Financial Corporation (NASDAQ:UMBF). Millennium Management had $16 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.5 million position during the quarter. The other funds with new positions in the stock are Paul Tudor Jones’s Tudor Investment Corp, Michael Gelband’s ExodusPoint Capital, and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Let’s check out hedge fund activity in other stocks similar to UMB Financial Corporation (NASDAQ:UMBF). These stocks are The Descartes Systems Group Inc (NASDAQ:DSGX), Black Stone Minerals LP (NYSE:BSM), Neogen Corporation (NASDAQ:NEOG), and Thor Industries, Inc. (NYSE:THO). This group of stocks’ market valuations resemble UMBF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DSGX | 11 | 121216 | 1 |
| BSM | 7 | 11439 | 2 |
| NEOG | 12 | 28955 | 0 |
| THO | 19 | 115885 | -1 |
| Average | 12.25 | 69374 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $69 million. That figure was $80 million in UMBF’s case. Thor Industries, Inc. (NYSE:THO) is the most popular stock in this table. On the other hand Black Stone Minerals LP (NYSE:BSM) is the least popular one with only 7 bullish hedge fund positions. UMB Financial Corporation (NASDAQ:UMBF) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately UMBF wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UMBF were disappointed as the stock returned -1.4% 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 this year.
Disclosure: None. This article was originally published at Insider Monkey.
