Based on the fact that hedge funds have collectively under-performed the market for several years, it would be easy to assume that their stock picks simply aren’t very good. However, our research shows this not to be the case. In fact, when it comes to their very top picks collectively, they show a strong ability to pick winning stocks. This year hedge funds’ top 20 stock picks easily bested the broader market, at 18.7% compared to 12.1%, despite there being a few duds in there like Berkshire Hathaway (even their collective wisdom isn’t perfect). The results show that there is plenty of merit to imitating the collective wisdom of top investors.
Is Unilever N.V. (NYSE:UN) undervalued? Hedge funds are in a bullish mood. The number of long hedge fund positions went up by 4 lately. Our calculations also showed that un isn’t among the 30 most popular stocks among hedge funds. UN was in 19 hedge funds’ portfolios at the end of the first quarter of 2019. There were 15 hedge funds in our database with UN positions at the end of the previous quarter.
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’ 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 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 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.
Let’s analyze the latest hedge fund action surrounding Unilever N.V. (NYSE:UN).
What does the smart money think about Unilever N.V. (NYSE:UN)?
Heading into the second quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UN over the last 15 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
The largest stake in Unilever N.V. (NYSE:UN) was held by Gardner Russo & Gardner, which reported holding $775.8 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $284.8 million position. Other investors bullish on the company included Fisher Asset Management, Renaissance Technologies, and Osterweis Capital Management.
As one would reasonably expect, some big names have been driving this bullishness. Osterweis Capital Management, managed by John Osterweis, initiated the biggest position in Unilever N.V. (NYSE:UN). Osterweis Capital Management had $24.9 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $7.7 million investment in the stock during the quarter. The other funds with brand new UN positions are Lee Ainslie’s Maverick Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Michael Gelband’s ExodusPoint Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Unilever N.V. (NYSE:UN). We will take a look at Unilever plc (NYSE:UL), BP plc (NYSE:BP), Citigroup Inc. (NYSE:C), and McDonald’s Corporation (NYSE:MCD). This group of stocks’ market valuations resemble UN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| UL | 13 | 396239 | 0 |
| BP | 29 | 1139916 | -5 |
| C | 87 | 9189925 | -3 |
| MCD | 54 | 3120539 | 6 |
| Average | 45.75 | 3461655 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.75 hedge funds with bullish positions and the average amount invested in these stocks was $3462 million. That figure was $1414 million in UN’s case. Citigroup Inc. (NYSE:C) is the most popular stock in this table. On the other hand Unilever plc (NYSE:UL) is the least popular one with only 13 bullish hedge fund positions. Unilever N.V. (NYSE:UN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on UN as the stock returned 5.4% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
