“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Principal Financial Group Inc (NASDAQ:PFG).
Is Principal Financial Group Inc (NASDAQ:PFG) worth your attention right now? The smart money is turning less bullish. The number of long hedge fund positions dropped by 3 recently. Our calculations also showed that PFG isn’t among the 30 most popular stocks among hedge funds. PFG was in 15 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with PFG positions at the end of the previous quarter.
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 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. 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 go over the key hedge fund action surrounding Principal Financial Group Inc (NASDAQ:PFG).
What does smart money think about Principal Financial Group Inc (NASDAQ:PFG)?
At Q1’s end, a total of 15 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PFG over the last 15 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
More specifically, Two Sigma Advisors was the largest shareholder of Principal Financial Group Inc (NASDAQ:PFG), with a stake worth $40.5 million reported as of the end of March. Trailing Two Sigma Advisors was Impax Asset Management, which amassed a stake valued at $6.3 million. GLG Partners, Holocene Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Because Principal Financial Group Inc (NASDAQ:PFG) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few fund managers that elected to cut their positions entirely in the third quarter. Interestingly, Peter Seuss’s Prana Capital Management said goodbye to the largest stake of the 700 funds followed by Insider Monkey, worth close to $6.8 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund dumped about $2.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Principal Financial Group Inc (NASDAQ:PFG) but similarly valued. These stocks are Teleflex Incorporated (NYSE:TFX), Icahn Enterprises LP (NASDAQ:IEP), Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), and Magellan Midstream Partners, L.P. (NYSE:MMP). All of these stocks’ market caps are closest to PFG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TFX | 19 | 765454 | 4 |
| IEP | 5 | 12864139 | -1 |
| KOF | 9 | 520656 | 3 |
| MMP | 10 | 68585 | -2 |
| Average | 10.75 | 3554709 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $3555 million. That figure was $62 million in PFG’s case. Teleflex Incorporated (NYSE:TFX) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 5 bullish hedge fund positions. Principal Financial Group Inc (NASDAQ:PFG) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on PFG as the stock returned 13% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
