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. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Unum Group (NYSE:UNM) makes for a good investment right now.
Unum Group (NYSE:UNM) was in 30 hedge funds’ portfolios at the end of December. UNM investors should pay attention to an increase in activity from the world’s largest hedge funds lately. There were 25 hedge funds in our database with UNM positions at the end of the previous quarter. Our calculations also showed that UNM 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.
David E. Shaw of D.E. Shaw
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 fresh hedge fund action encompassing Unum Group (NYSE:UNM).
How have hedgies been trading Unum Group (NYSE:UNM)?
Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from one quarter earlier. On the other hand, there were a total of 25 hedge funds with a bullish position in UNM 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.
The largest stake in Unum Group (NYSE:UNM) was held by Arrowstreet Capital, which reported holding $119.2 million worth of stock at the end of September. It was followed by AQR Capital Management with a $102.3 million position. Other investors bullish on the company included D E Shaw, Two Sigma Advisors, and GLG Partners. In terms of the portfolio weights assigned to each position Weld Capital Management allocated the biggest weight to Unum Group (NYSE:UNM), around 0.62% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.38 percent of its 13F equity portfolio to UNM.
As one would reasonably expect, key hedge funds have been driving this bullishness. Weld Capital Management, managed by Minhua Zhang, initiated the biggest position in Unum Group (NYSE:UNM). Weld Capital Management had $3.2 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $1.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Karim Abbadi and Edward McBride’s Centiva Capital, and David Andre and Astro Teller’s Cerebellum Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Unum Group (NYSE:UNM). These stocks are Curtiss-Wright Corp. (NYSE:CW), Nutanix, Inc. (NASDAQ:NTNX), MKS Instruments, Inc. (NASDAQ:MKSI), and Parsley Energy Inc (NYSE:PE). This group of stocks’ market values resemble UNM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CW | 22 | 405133 | -1 |
| NTNX | 32 | 855350 | 6 |
| MKSI | 28 | 445354 | 10 |
| PE | 52 | 1041267 | 4 |
| Average | 33.5 | 686776 | 4.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 33.5 hedge funds with bullish positions and the average amount invested in these stocks was $687 million. That figure was $453 million in UNM’s case. Parsley Energy Inc (NYSE:PE) is the most popular stock in this table. On the other hand Curtiss-Wright Corp. (NYSE:CW) is the least popular one with only 22 bullish hedge fund positions. Unum Group (NYSE:UNM) 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 UNM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UNM investors were disappointed as the stock returned -49.3% 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 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.
