In this article we will check out the progression of hedge fund sentiment towards Principal Financial Group Inc (NYSE:PFG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Is Principal Financial Group Inc (NYSE:PFG) a buy here? The smart money is betting on the stock. The number of bullish hedge fund positions moved up by 7 lately. Our calculations also showed that PFG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). PFG was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with PFG positions at the end of the previous quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Ray Dalio of Bridgewater Associates
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the key hedge fund action surrounding Principal Financial Group Inc (NYSE:PFG).
How are hedge funds trading Principal Financial Group Inc (NYSE:PFG)?
At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PFG over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, Prana Capital Management was the largest shareholder of Principal Financial Group Inc (NYSE:PFG), with a stake worth $17.4 million reported as of the end of September. Trailing Prana Capital Management was D E Shaw, which amassed a stake valued at $14.8 million. Gillson Capital, Millennium Management, and Renaissance Technologies 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 Prana Capital Management allocated the biggest weight to Principal Financial Group Inc (NYSE:PFG), around 5.06% of its 13F portfolio. Gillson Capital is also relatively very bullish on the stock, setting aside 2.14 percent of its 13F equity portfolio to PFG.
As industrywide interest jumped, specific money managers were breaking ground themselves. Gillson Capital, managed by Daniel Johnson, assembled the biggest position in Principal Financial Group Inc (NYSE:PFG). Gillson Capital had $12.7 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $9.4 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Ken Griffin’s Citadel Investment Group.
Let’s check out hedge fund activity in other stocks similar to Principal Financial Group Inc (NYSE:PFG). These stocks are DENTSPLY SIRONA Inc. (NASDAQ:XRAY), ViacomCBS Inc. (NASDAQ:VIAC), Regions Financial Corporation (NYSE:RF), and Universal Health Services, Inc. (NYSE:UHS). This group of stocks’ market valuations resemble PFG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XRAY | 30 | 996924 | 2 |
| VIAC | 54 | 952791 | -10 |
| RF | 37 | 235284 | 0 |
| UHS | 30 | 443724 | -1 |
| Average | 37.75 | 657181 | -2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.75 hedge funds with bullish positions and the average amount invested in these stocks was $657 million. That figure was $119 million in PFG’s case. ViacomCBS Inc. (NASDAQ:VIAC) is the most popular stock in this table. On the other hand DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the least popular one with only 30 bullish hedge fund positions. Compared to these stocks Principal Financial Group Inc (NYSE:PFG) is even less popular than XRAY. Hedge funds clearly dropped the ball on PFG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and still beat the market by 13.2 percentage points. A small number of hedge funds were also right about betting on PFG as the stock returned 24.9% so far in the second quarter and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
