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AFLAC Incorporated (AFL): Hedge Funds Are Staying Put

In this article we will take a look at whether hedge funds think AFLAC Incorporated (NYSE:AFL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

AFLAC Incorporated (NYSE:AFL) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds’ portfolios at the end of March. At the end of this article we will also compare AFL to other stocks including DexCom, Inc. (NASDAQ:DXCM), China Telecom Corporation Limited (NYSE:CHA), and Lululemon Athletica inc. (NASDAQ:LULU) to get a better sense of its popularity.

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

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 51 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phill Gross of Adage Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to analyze the recent hedge fund action encompassing AFLAC Incorporated (NYSE:AFL).

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

At the end of the first quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in AFL 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.

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in AFLAC Incorporated (NYSE:AFL). Citadel Investment Group has a $146.6 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Ariel Investments, led by John W. Rogers, holding a $54.4 million position; 1% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism comprise Cliff Asness’s AQR Capital Management, Israel Englander’s Millennium Management and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to AFLAC Incorporated (NYSE:AFL), around 2.09% of its 13F portfolio. Arjuna Capital is also relatively very bullish on the stock, earmarking 1.53 percent of its 13F equity portfolio to AFL.

Judging by the fact that AFLAC Incorporated (NYSE:AFL) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedge funds who were dropping their entire stakes last quarter. At the top of the heap, George Soros’s Soros Fund Management cut the largest investment of the 750 funds followed by Insider Monkey, valued at close to $4.6 million in stock. Michael Kharitonov and Jon David McAuliffe’s fund, Voleon Capital, also cut its stock, about $2 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to AFLAC Incorporated (NYSE:AFL). We will take a look at DexCom, Inc. (NASDAQ:DXCM), China Telecom Corporation Limited (NYSE:CHA), Lululemon Athletica inc. (NASDAQ:LULU), and MSCI Inc (NYSE:MSCI). This group of stocks’ market valuations are similar to AFL’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DXCM 58 1211152 18
CHA 5 28440 -2
LULU 40 788852 -7
MSCI 29 638503 -13
Average 33 666737 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 33 hedge funds with bullish positions and the average amount invested in these stocks was $667 million. That figure was $387 million in AFL’s case. DexCom, Inc. (NASDAQ:DXCM) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 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. 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 8.3% in 2020 through the end of May and surpassed the market by 13.2 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 7.4% during the second quarter 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.

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