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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards UMB Financial Corporation (NASDAQ:UMBF).
Is UMB Financial Corporation (NASDAQ:UMBF) a buy right now? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions went up by 3 recently. Our calculations also showed that UMBF isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). UMBF was in 19 hedge funds’ portfolios at the end of December. There were 16 hedge funds in our database with UMBF positions at the end of the previous quarter.
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.
Martin Whitman of Third Avenue 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. Now we’re going to review the key hedge fund action surrounding UMB Financial Corporation (NASDAQ:UMBF).
Hedge fund activity in UMB Financial Corporation (NASDAQ:UMBF)
At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the third quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in UMBF a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Fisher Asset Management held the most valuable stake in UMB Financial Corporation (NASDAQ:UMBF), which was worth $19.8 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $15.8 million worth of shares. Citadel Investment Group, Millennium Management, and Third Avenue 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 Third Avenue Management allocated the biggest weight to UMB Financial Corporation (NASDAQ:UMBF), around 0.9% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, setting aside 0.03 percent of its 13F equity portfolio to UMBF.
As aggregate interest increased, key money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, initiated the largest position in UMB Financial Corporation (NASDAQ:UMBF). Winton Capital Management had $0.7 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $0.7 million position during the quarter. The other funds with brand new UMBF positions are Cliff Asness’s AQR Capital Management, Peter Muller’s PDT Partners, and Thomas Bailard’s Bailard Inc.
Let’s also examine hedge fund activity in other stocks similar to UMB Financial Corporation (NASDAQ:UMBF). These stocks are MyoKardia, Inc. (NASDAQ:MYOK), GrafTech International Ltd. (NYSE:EAF), Brookfield Business Partners L.P. (NYSE:BBU), and SmileDirectClub, Inc. (NASDAQ:SDC). This group of stocks’ market valuations match UMBF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MYOK | 26 | 933869 | 1 |
| EAF | 33 | 241631 | 6 |
| BBU | 4 | 9985 | -2 |
| SDC | 20 | 139860 | -9 |
| Average | 20.75 | 331336 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $81 million in UMBF’s case. GrafTech International Ltd. (NYSE:EAF) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 4 bullish hedge fund positions. UMB Financial Corporation (NASDAQ:UMBF) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately UMBF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UMBF investors were disappointed as the stock returned -34.2% 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 in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
