“The end to the U.S. Government shutdown, reports of progress on China-U.S. trade talks, and the Federal Reserve’s confirmation that it did not plan further interest rate hikes in 2019 allayed investor fears and drove U.S. markets substantially higher in the first quarter of the year. Global markets followed suit pretty much across the board delivering what some market participants described as a “V-shaped” recovery,” This is how Evermore Global Value summarized the first quarter in its investor letter. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards one of the stocks hedge funds invest in.
Is United Natural Foods, Inc. (NYSE:UNFI) ready to rally soon? Money managers are getting less bullish. The number of bullish hedge fund positions went down by 3 lately. Our calculations also showed that unfi isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the recent hedge fund action encompassing United Natural Foods, Inc. (NYSE:UNFI).
Hedge fund activity in United Natural Foods, Inc. (NYSE:UNFI)
Heading into the second quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards UNFI over the last 15 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in United Natural Foods, Inc. (NYSE:UNFI), worth close to $10.5 million, amounting to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Two Sigma Advisors, led by John Overdeck and David Siegel, holding a $9.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism consist of Charles Lemonides’s Valueworks LLC, Ken Griffin’s Citadel Investment Group and Jonathan Kolatch’s Redwood Capital Management.
Seeing as United Natural Foods, Inc. (NYSE:UNFI) has experienced a decline in interest from hedge fund managers, it’s safe to say that there is a sect of hedge funds that slashed their entire stakes last quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the biggest investment of all the hedgies watched by Insider Monkey, totaling an estimated $10.4 million in stock. Cliff Asness’s fund, AQR Capital Management, also sold off its stock, about $1.9 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 3 funds last quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as United Natural Foods, Inc. (NYSE:UNFI) but similarly valued. These stocks are Byline Bancorp, Inc. (NYSE:BY), Dime Community Bancshares, Inc. (NASDAQ:DCOM), Hersha Hospitality Trust (NYSE:HT), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). This group of stocks’ market caps resemble UNFI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BY | 3 | 17716 | -3 |
| DCOM | 8 | 38136 | -1 |
| HT | 12 | 33060 | -1 |
| ITCI | 12 | 43843 | -3 |
| Average | 8.75 | 33189 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was $48 million in UNFI’s case. Hersha Hospitality Trust (NYSE:HT) is the most popular stock in this table. On the other hand Byline Bancorp, Inc. (NYSE:BY) is the least popular one with only 3 bullish hedge fund positions. United Natural Foods, Inc. (NYSE:UNFI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately UNFI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on UNFI were disappointed as the stock returned -27.9% during the same 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
