Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Metlife Inc (NYSE:MET) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Metlife Inc (NYSE:MET) was in 38 hedge funds’ portfolios at the end of the fourth quarter of 2019. MET has seen a decrease in support from the world’s most elite money managers of late. There were 39 hedge funds in our database with MET holdings at the end of the previous quarter. Our calculations also showed that MET isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Andreas Halvorsen of Viking Global
We leave no stone unturned when looking for the next great investment idea. For example, COVID-19 pandemic is still the main driver of stock prices. So we are checking out this trader’s corona catalyst trades. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the key hedge fund action surrounding Metlife Inc (NYSE:MET).
How have hedgies been trading Metlife Inc (NYSE:MET)?
At Q4’s end, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MET over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Metlife Inc (NYSE:MET) was held by Diamond Hill Capital, which reported holding $498.1 million worth of stock at the end of September. It was followed by AQR Capital Management with a $449.6 million position. Other investors bullish on the company included Viking Global, Pzena Investment Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Masters Capital Management allocated the biggest weight to Metlife Inc (NYSE:MET), around 2.77% of its 13F portfolio. Diamond Hill Capital is also relatively very bullish on the stock, designating 2.5 percent of its 13F equity portfolio to MET.
Seeing as Metlife Inc (NYSE:MET) has faced declining sentiment from the smart money, logic holds that there is a sect of funds who sold off their full holdings heading into Q4. At the top of the heap, Renaissance Technologies dropped the largest investment of the “upper crust” of funds followed by Insider Monkey, valued at about $17.6 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dropped about $9.3 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q4.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Metlife Inc (NYSE:MET) but similarly valued. These stocks are American Electric Power Company, Inc. (NYSE:AEP), Emerson Electric Co. (NYSE:EMR), The Bank of New York Mellon Corporation (NYSE:BK), and Shopify Inc (NYSE:SHOP). This group of stocks’ market caps match MET’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AEP | 34 | 1687802 | -1 |
| EMR | 41 | 1165094 | 2 |
| BK | 58 | 6711257 | 3 |
| SHOP | 30 | 3075550 | -7 |
| Average | 40.75 | 3159926 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 40.75 hedge funds with bullish positions and the average amount invested in these stocks was $3160 million. That figure was $2372 million in MET’s case. The Bank of New York Mellon Corporation (NYSE:BK) is the most popular stock in this table. On the other hand Shopify Inc (NYSE:SHOP) is the least popular one with only 30 bullish hedge fund positions. Metlife Inc (NYSE:MET) 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 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 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately MET wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MET investors were disappointed as the stock returned -31.4% during the same time period 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.
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.
