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Do Hedge Funds Love UBS AG (USA) (UBS)?

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After a lengthy stretch of outperformance, small-cap stocks suffered from July 2015 through June 2016, as heightened global economic fears led investors to flee to the safe havens of large-cap stocks and other instruments. Those stocks outperformed small-caps by about 10 percentage points during that time, with small-cap healthcare stocks being particularly hard hit. However, the tide has since turned in a big way, as evidenced by small-caps toppling their large-cap peers by 5 percentage points in the third quarter, and by another 5 percentage points in the first seven weeks of the fourth quarter. In this article, we’ll analyze how this shift affected hedge funds’ Q3 trading of UBS AG (USA) (NYSE:UBS) and see how the stock is affected by the recent hedge fund activity.

UBS AG (USA) (NYSE:UBS) has seen a decrease in support from the world’s most successful money managers recently. UBS was in 8 hedge funds’ portfolios at the end of the third quarter of 2016. There were 10 hedge funds in our database with UBS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Canadian National Railway (USA) (NYSE:CNI), Banco Bradesco SA (ADR) (NYSE:BBD), and Telefonica S.A. (ADR) (NYSE:TEF) to gather more data points.

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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.

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Keeping this in mind, let’s take a look at the fresh action regarding UBS AG (USA) (NYSE:UBS).

How have hedgies been trading UBS AG (USA) (NYSE:UBS)?

Heading into the fourth quarter of 2016, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UBS over the last 5 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

UBS Chart

Of the funds tracked by Insider Monkey, Fisher Asset Management, led by Ken Fisher, holds the biggest position in UBS AG (USA) (NYSE:UBS). Fisher Asset Management has a $477.1 million position in the stock, comprising 0.8% of its 13F portfolio. The second most bullish fund manager is Richard S. Pzena of Pzena Investment Management, with a $157.6 million position; 1% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions contain Cliff Asness’ AQR Capital Management, Brian Ashford-Russell and Tim Woolley’s Polar Capital and J. Alan Reid, Jr.’s Forward Management. We should note that Forward Management is among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

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