How do you pick the next stock to invest in? One way would be to spend hours of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Manulife Financial Corporation (NYSE:MFC).
Manulife Financial Corporation (NYSE:MFC) investors should pay attention to an increase in hedge fund sentiment of late. Our calculations also showed that MFC isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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 our short portfolio.
We’re going to review the new hedge fund action surrounding Manulife Financial Corporation (NYSE:MFC).
What does the smart money think about Manulife Financial Corporation (NYSE:MFC)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 31% from the second quarter of 2018. By comparison, 17 hedge funds held shares or bullish call options in MFC heading into this year. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Manulife Financial Corporation (NYSE:MFC), with a stake worth $97.7 million reported as of the end of September. Trailing AQR Capital Management was Citadel Investment Group, which amassed a stake valued at $69.2 million. Arrowstreet Capital, Two Sigma Advisors, and Renaissance Technologies were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, some big names have been driving this bullishness. BlueCrest Capital Mgmt., managed by Michael Platt and William Reeves, initiated the largest position in Manulife Financial Corporation (NYSE:MFC). BlueCrest Capital Mgmt. had $2.1 million invested in the company at the end of the quarter. Jeffrey Talpins’s Element Capital Management also made a $1.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Tewksbury’s Stevens Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Alec Litowitz and Ross Laser’s Magnetar Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Manulife Financial Corporation (NYSE:MFC) but similarly valued. These stocks are Nutrien Ltd. (NYSE:NTR), National Grid plc (NYSE:NGG), Public Storage (NYSE:PSA), and American Electric Power Company, Inc. (NYSE:AEP). All of these stocks’ market caps match MFC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTR | 35 | 818245 | 8 |
| NGG | 11 | 237302 | -2 |
| PSA | 15 | 679829 | -2 |
| AEP | 36 | 1257422 | 10 |
| Average | 24.25 | 748200 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.25 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $389 million in MFC’s case. American Electric Power Company, Inc. (NYSE:AEP) is the most popular stock in this table. On the other hand National Grid plc (NYSE:NGG) is the least popular one with only 11 bullish hedge fund positions. Manulife Financial Corporation (NYSE:MFC) 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. In this regard AEP might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
