We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like United Fire Group, Inc. (NASDAQ:UFCS).
United Fire Group, Inc. (NASDAQ:UFCS) investors should pay attention to a decrease in enthusiasm from smart money in recent months. Our calculations also showed that UFCS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s check out the key hedge fund action surrounding United Fire Group, Inc. (NASDAQ:UFCS).
What does smart money think about United Fire Group, Inc. (NASDAQ:UFCS)?
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in UFCS over the last 17 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 United Fire Group, Inc. (NASDAQ:UFCS) was held by Renaissance Technologies, which reported holding $8 million worth of stock at the end of September. It was followed by Millennium Management with a $1.7 million position. Other investors bullish on the company included AQR Capital Management, Winton Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Caxton Associates allocated the biggest weight to United Fire Group, Inc. (NASDAQ:UFCS), around 0.05% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to UFCS.
Since United Fire Group, Inc. (NASDAQ:UFCS) has witnessed a decline in interest from the smart money, it’s easy to see that there exists a select few hedge funds who were dropping their full holdings by the end of the third quarter. It’s worth mentioning that Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the “upper crust” of funds watched by Insider Monkey, worth an estimated $1.7 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also sold off its stock, about $0.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now take a look at hedge fund activity in other stocks similar to United Fire Group, Inc. (NASDAQ:UFCS). These stocks are Vicor Corp (NASDAQ:VICR), New Mountain Finance Corp. (NYSE:NMFC), Radius Health Inc (NASDAQ:RDUS), and Compass Diversified Holdings (NYSE:CODI). This group of stocks’ market caps are similar to UFCS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VICR | 11 | 15736 | -2 |
| NMFC | 15 | 40701 | 4 |
| RDUS | 18 | 268579 | 2 |
| CODI | 5 | 4549 | 0 |
| Average | 12.25 | 82391 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $14 million in UFCS’s case. Radius Health Inc (NASDAQ:RDUS) is the most popular stock in this table. On the other hand Compass Diversified Holdings (NYSE:CODI) is the least popular one with only 5 bullish hedge fund positions. United Fire Group, Inc. (NASDAQ:UFCS) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately UFCS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); UFCS investors were disappointed as the stock returned -5.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
