Were Hedge Funds Right About Selling Manulife Financial Corporation (MFC)?

At Insider Monkey, we pore over the filings of nearly 866 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of March 31st. In this article, we will use that wealth of knowledge to determine whether or not Manulife Financial Corporation (NYSE:MFC) makes for a good investment right now.

Is Manulife Financial Corporation (NYSE:MFC) undervalued? Investors who are in the know were reducing their bets on the stock. The number of long hedge fund positions went down by 3 recently. Manulife Financial Corporation (NYSE:MFC) was in 17 hedge funds’ portfolios at the end of March. The all time high for this statistic is 21. Our calculations also showed that MFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 20 hedge funds in our database with MFC holdings at the end of December.

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 115 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.

Robert Richards of Heathbridge Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding Manulife Financial Corporation (NYSE:MFC).

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

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in MFC 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.

More specifically, Galibier Capital Management was the largest shareholder of Manulife Financial Corporation (NYSE:MFC), with a stake worth $76.9 million reported as of the end of March. Trailing Galibier Capital Management was Heathbridge Capital Management, which amassed a stake valued at $40 million. GLG Partners, PEAK6 Capital Management, and Marshall Wace LLP 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 Galibier Capital Management allocated the biggest weight to Manulife Financial Corporation (NYSE:MFC), around 11.55% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, setting aside 10.98 percent of its 13F equity portfolio to MFC.

Because Manulife Financial Corporation (NYSE:MFC) has witnessed falling interest from hedge fund managers, logic holds that there exists a select few funds that elected to cut their entire stakes in the first quarter. Intriguingly, D. E. Shaw’s D E Shaw sold off the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $9.5 million in stock. Donald Sussman’s fund, Paloma Partners, also dumped its stock, about $0.3 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 3 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Manulife Financial Corporation (NYSE:MFC) but similarly valued. These stocks are eBay Inc (NASDAQ:EBAY), L3Harris Technologies, Inc. (NYSE:LHX), The Bank of New York Mellon Corporation (NYSE:BK), Cognizant Technology Solutions Corp (NASDAQ:CTSH), DuPont de Nemours Inc (NYSE:DD), Lloyds Banking Group PLC (NYSE:LYG), and IHS Markit Ltd. (NYSE:INFO). This group of stocks’ market values are closest to MFC’s market value.

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As you can see these stocks had an average of 40.3 hedge funds with bullish positions and the average amount invested in these stocks was $2728 million. That figure was $190 million in MFC’s case. IHS Markit Ltd. (NYSE:INFO) is the most popular stock in this table. On the other hand Lloyds Banking Group PLC (NYSE:LYG) is the least popular one with only 5 bullish hedge fund positions. Manulife Financial Corporation (NYSE:MFC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MFC is 38.5. 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 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately MFC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MFC investors were disappointed as the stock returned -10.5% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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