Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Prudential plc (NYSE:PUK).
Prudential plc (NYSE:PUK) was in 5 hedge funds’ portfolios at the end of the second quarter of 2019. PUK has experienced a decrease in hedge fund interest of late. There were 6 hedge funds in our database with PUK positions at the end of the previous quarter. Our calculations also showed that PUK isn’t among the 30 most popular stocks among hedge funds (see the video at the end of this article).
Why do we pay any attention at all to hedge fund sentiment? 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a gander at the fresh hedge fund action encompassing Prudential plc (NYSE:PUK).
What does smart money think about Prudential plc (NYSE:PUK)?
At Q2’s end, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in PUK over the last 16 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Prudential plc (NYSE:PUK) was held by Renaissance Technologies, which reported holding $28.4 million worth of stock at the end of March. It was followed by Arrowstreet Capital with a $9.9 million position. Other investors bullish on the company included McKinley Capital Management, D E Shaw, and ExodusPoint Capital.
Because Prudential plc (NYSE:PUK) has witnessed a decline in interest from the smart money, we can see that there were a few fund managers who sold off their full holdings heading into Q3. Interestingly, Israel Englander’s Millennium Management dropped the biggest stake of the “upper crust” of funds followed by Insider Monkey, worth an estimated $2.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dumped its stock, about $1 million worth. These transactions are important to note, as total hedge fund interest fell by 1 funds heading into Q3.
Let’s now review hedge fund activity in other stocks similar to Prudential plc (NYSE:PUK). These stocks are Ecolab Inc. (NYSE:ECL), The Blackstone Group Inc. (NYSE:BX), DuPont de Nemours, Inc. (NYSE:DD), and General Motors Company (NYSE:GM). This group of stocks’ market valuations resemble PUK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ECL | 27 | 2047954 | 0 |
| BX | 30 | 519284 | -4 |
| DD | 42 | 1023646 | -19 |
| GM | 49 | 5743946 | -4 |
| Average | 37 | 2333708 | -6.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $2334 million. That figure was $40 million in PUK’s case. General Motors Company (NYSE:GM) is the most popular stock in this table. On the other hand Ecolab Inc. (NYSE:ECL) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Prudential plc (NYSE:PUK) is even less popular than ECL. Hedge funds dodged a bullet by taking a bearish stance towards PUK. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately PUK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); PUK investors were disappointed as the stock returned -16% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
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.
