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. Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Sun Life Financial Inc. (NYSE:SLF)? The smart money sentiment can provide an answer to this question.
Is Sun Life Financial Inc. (NYSE:SLF) an excellent investment right now? Money managers are becoming more confident. The number of long hedge fund positions inched up by 3 recently. Our calculations also showed that SLF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). SLF was in 16 hedge funds’ portfolios at the end of December. There were 13 hedge funds in our database with SLF 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.
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
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 go over the fresh hedge fund action regarding Sun Life Financial Inc. (NYSE:SLF).
What does smart money think about Sun Life Financial Inc. (NYSE:SLF)?
At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SLF over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Sun Life Financial Inc. (NYSE:SLF), with a stake worth $37.9 million reported as of the end of September. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $34.4 million. Arrowstreet Capital, D E Shaw, and Bridgewater Associates 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 Unio Capital allocated the biggest weight to Sun Life Financial Inc. (NYSE:SLF), around 0.16% of its 13F portfolio. GLG Partners is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to SLF.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Laurion Capital Management, managed by Benjamin A. Smith, established the largest position in Sun Life Financial Inc. (NYSE:SLF). Laurion Capital Management had $1 million invested in the company at the end of the quarter. Donald Sussman’s Paloma Partners also initiated a $0.6 million position during the quarter. The other funds with brand new SLF positions are Mika Toikka’s AlphaCrest Capital Management, Michael Gelband’s ExodusPoint Capital, and Frederick DiSanto’s Ancora Advisors.
Let’s now take a look at hedge fund activity in other stocks similar to Sun Life Financial Inc. (NYSE:SLF). We will take a look at Discover Financial Services (NYSE:DFS), Agilent Technologies Inc. (NYSE:A), Parker-Hannifin Corporation (NYSE:PH), and 0. All of these stocks’ market caps are similar to SLF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DFS | 39 | 830938 | -2 |
| A | 46 | 2470187 | 5 |
| PH | 39 | 971423 | 11 |
| BKR | 37 | 573421 | 3 |
| Average | 40.25 | 1211492 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.25 hedge funds with bullish positions and the average amount invested in these stocks was $1211 million. That figure was $133 million in SLF’s case. Agilent Technologies Inc. (NYSE:A) is the most popular stock in this table. On the other hand 0 is the least popular one with only 37 bullish hedge fund positions. Compared to these stocks Sun Life Financial Inc. (NYSE:SLF) is even less popular than BKR. Hedge funds dodged a bullet by taking a bearish stance towards SLF. Our calculations showed that the top 20 most popular hedge fund stocks 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 managed to beat the market by 3.1 percentage points. Unfortunately SLF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); SLF investors were disappointed as the stock returned -18.3% 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 most of these stocks already outperformed the market so far in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
