Was The Smart Money Right About Union Pacific Corporation (UNP)?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Union Pacific Corporation (NYSE:UNP) to find out whether there were any major changes in hedge funds’ views.

Union Pacific Corporation (NYSE:UNP) has seen a decrease in support from the world’s most elite money managers recently. Union Pacific Corporation (NYSE:UNP) was in 69 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 75. Our calculations also showed that UNP isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chris Hohn of TCI Fund Management

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Do Hedge Funds Think UNP Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 69 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards UNP over the last 24 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Among these funds, TCI Fund Management held the most valuable stake in Union Pacific Corporation (NYSE:UNP), which was worth $1258.3 million at the end of the second quarter. On the second spot was Fisher Asset Management which amassed $1015.1 million worth of shares. Soroban Capital Partners, Citadel Investment Group, and Suvretta Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Skylands Capital allocated the biggest weight to Union Pacific Corporation (NYSE:UNP), around 7.57% of its 13F portfolio. Soroban Capital Partners is also relatively very bullish on the stock, setting aside 6.84 percent of its 13F equity portfolio to UNP.

Judging by the fact that Union Pacific Corporation (NYSE:UNP) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there is a sect of funds who sold off their entire stakes in the second quarter. At the top of the heap, Doug Silverman and Alexander Klabin’s Senator Investment Group dropped the biggest investment of the 750 funds followed by Insider Monkey, totaling about $60.6 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund said goodbye to about $28.7 million worth. These moves are important to note, as total hedge fund interest dropped by 6 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Union Pacific Corporation (NYSE:UNP). We will take a look at Royal Bank of Canada (NYSE:RY), Sea Limited (NYSE:SE), NextEra Energy, Inc. (NYSE:NEE), Anheuser-Busch InBev SA/NV (NYSE:BUD), The Boeing Company (NYSE:BA), Amgen, Inc. (NASDAQ:AMGN), and The Charles Schwab Corporation (NYSE:SCHW). This group of stocks’ market values resemble UNP’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 54.7 hedge funds with bullish positions and the average amount invested in these stocks was $3558 million. That figure was $5035 million in UNP’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Royal Bank of Canada (NYSE:RY) is the least popular one with only 18 bullish hedge fund positions. Union Pacific Corporation (NYSE:UNP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for UNP is 56.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 26.3% in 2021 through October 29th and still beat the market by 2.3 percentage points. Hedge funds were also right about betting on UNP as the stock returned 10.3% since the end of Q2 (through 10/29) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.