There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Carl Icahn and George Soros think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Sun Life Financial Inc. (NYSE:SLF).
Sun Life Financial Inc. (NYSE:SLF) has seen an increase in activity from the world’s largest hedge funds of late. Our calculations also showed that SLF 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’ 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.
We’re going to review the latest hedge fund action regarding Sun Life Financial Inc. (NYSE:SLF).
What does the smart money think about Sun Life Financial Inc. (NYSE:SLF)?
At Q3’s end, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SLF over the last 13 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Sun Life Financial Inc. (NYSE:SLF), with a stake worth $63.3 million reported as of the end of September. Trailing Arrowstreet Capital was Two Sigma Advisors, which amassed a stake valued at $21.1 million. AQR Capital Management, GLG Partners, and Bridgewater Associates were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key money managers were leading the bulls’ herd. HBK Investments, managed by David Costen Haley, created the most outsized position in Sun Life Financial Inc. (NYSE:SLF). HBK Investments had $1 million invested in the company at the end of the quarter. Frederick DiSanto’s Ancora Advisors also made a $0 million investment in the stock during the quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Sun Life Financial Inc. (NYSE:SLF) but similarly valued. We will take a look at Xcel Energy Inc (NASDAQ:XEL), Hewlett Packard Enterprise Company (NYSE:HPE), Welltower Inc. (NYSE:WELL), and Lam Research Corporation (NASDAQ:LRCX). This group of stocks’ market caps are similar to SLF’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XEL | 21 | 456282 | 3 |
| HPE | 30 | 1102518 | 2 |
| WELL | 18 | 401950 | -1 |
| LRCX | 34 | 1569377 | -9 |
| Average | 25.75 | 882532 | -1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $883 million. That figure was $148 million in SLF’s case. Lam Research Corporation (NASDAQ:LRCX) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Sun Life Financial Inc. (NYSE:SLF) is even less popular than WELL. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.
Disclosure: None. This article was originally published at Insider Monkey.
