Was The Smart Money Wrong About AFLAC Incorporated (AFL)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards AFLAC Incorporated (NYSE:AFL).

AFLAC Incorporated (NYSE:AFL) has seen an increase in support from the world’s most elite money managers of late. AFLAC Incorporated (NYSE:AFL) was in 34 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with AFL positions at the end of the first quarter. Our calculations also showed that AFL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by 58 percentage points since March 2017 (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.

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind let’s view the latest hedge fund action surrounding AFLAC Incorporated (NYSE:AFL).

What does smart money think about AFLAC Incorporated (NYSE:AFL)?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the first quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in AFL a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in AFLAC Incorporated (NYSE:AFL) was held by Citadel Investment Group, which reported holding $217.8 million worth of stock at the end of June. It was followed by Millennium Management with a $71.9 million position. Other investors bullish on the company included D E Shaw, Ariel Investments, and Prana Capital Management. In terms of the portfolio weights assigned to each position Prana Capital Management allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 6.59% of its 13F portfolio. Prospector Partners is also relatively very bullish on the stock, designating 2.24 percent of its 13F equity portfolio to AFL.

As aggregate interest increased, specific money managers were leading the bulls’ herd. Prana Capital Management, managed by Peter Seuss, created the most outsized position in AFLAC Incorporated (NYSE:AFL). Prana Capital Management had $48.4 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $26.2 million position during the quarter. The following funds were also among the new AFL investors: Daniel Johnson’s Gillson Capital, Greg Poole’s Echo Street Capital Management, and Thomas Bailard’s Bailard Inc.

Let’s check out hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). We will take a look at Suncor Energy Inc. (NYSE:SU), Sirius XM Holdings Inc (NASDAQ:SIRI), Cummins Inc. (NYSE:CMI), Schlumberger Limited. (NYSE:SLB), Johnson Controls International plc (NYSE:JCI), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). This group of stocks’ market values resemble AFL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $953 million. That figure was $588 million in AFL’s case. Schlumberger Limited. (NYSE:SLB) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 6 bullish hedge fund positions. AFLAC Incorporated (NYSE:AFL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AFL is 66.8. 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. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately AFL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AFL investors were disappointed as the stock returned -5.1% since the end of June (through 10/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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