We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Univar Solutions Inc (NYSE:UNVR) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Univar Solutions Inc (NYSE:UNVR) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2019. UNVR investors should pay attention to an increase in hedge fund interest in recent months. There were 38 hedge funds in our database with UNVR positions at the end of the previous quarter. Our calculations also showed that UNVR 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).
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 S&P 500 ETFs by 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.
Seth Klarman of Baupost Group
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s view the recent hedge fund action surrounding Univar Solutions Inc (NYSE:UNVR).
What does smart money think about Univar Solutions Inc (NYSE:UNVR)?
At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in UNVR a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Baupost Group was the largest shareholder of Univar Solutions Inc (NYSE:UNVR), with a stake worth $230.3 million reported as of the end of September. Trailing Baupost Group was Longview Asset Management, which amassed a stake valued at $207 million. First Pacific Advisors LLC, Iridian Asset Management, and FPR Partners 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 Falcon Edge Capital allocated the biggest weight to Univar Solutions Inc (NYSE:UNVR), around 9.92% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, earmarking 8.55 percent of its 13F equity portfolio to UNVR.
As industrywide interest jumped, key money managers have been driving this bullishness. Bayberry Capital Partners, managed by Angela Aldrich, established the biggest position in Univar Solutions Inc (NYSE:UNVR). Bayberry Capital Partners had $18.5 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors also made a $11.8 million investment in the stock during the quarter. The following funds were also among the new UNVR investors: Alexander Mitchell’s Scopus Asset Management, Avi Fruchter’s Anavon Capital, and Mubadala Investment’s MIC Capital Partners.
Let’s now review hedge fund activity in other stocks similar to Univar Solutions Inc (NYSE:UNVR). These stocks are Foot Locker, Inc. (NYSE:FL), Penske Automotive Group, Inc. (NYSE:PAG), RH (NYSE:RH), and CVR Energy, Inc. (NYSE:CVI). This group of stocks’ market values are closest to UNVR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FL | 29 | 426619 | -5 |
| PAG | 29 | 99761 | 12 |
| RH | 38 | 1195655 | 3 |
| CVI | 31 | 3034481 | 3 |
| Average | 31.75 | 1189129 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $1189 million. That figure was $1536 million in UNVR’s case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Foot Locker, Inc. (NYSE:FL) is the least popular one with only 29 bullish hedge fund positions. Compared to these stocks Univar Solutions Inc (NYSE:UNVR) is more popular among hedge funds. 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 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately UNVR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNVR were disappointed as the stock returned -55.3% during the three months of 2020 (through April 6th) 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 2020.
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.
