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Are Hedge Funds Going To Get Burned By Manpowergroup Inc (MAN)?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Manpowergroup Inc (NYSE:MAN).

Is Manpowergroup Inc (NYSE:MAN) ready to rally soon? Prominent investors are taking a pessimistic view. The number of bullish hedge fund bets were cut by 2 in recent months. Our calculations also showed that MAN isn’t among the 30 most popular stocks among hedge funds (view the video below). MAN was in 17 hedge funds’ portfolios at the end of the second quarter of 2019. There were 19 hedge funds in our database with MAN holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

MAN_oct2019

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the recent hedge fund action surrounding Manpowergroup Inc (NYSE:MAN).

How are hedge funds trading Manpowergroup Inc (NYSE:MAN)?

At Q2’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in MAN over the last 16 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Chuck Royce

More specifically, AQR Capital Management was the largest shareholder of Manpowergroup Inc (NYSE:MAN), with a stake worth $254.1 million reported as of the end of March. Trailing AQR Capital Management was D E Shaw, which amassed a stake valued at $64.4 million. Royce & Associates, Arrowstreet Capital, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

Since Manpowergroup Inc (NYSE:MAN) has experienced bearish sentiment from hedge fund managers, we can see that there was a specific group of funds that slashed their entire stakes by the end of the second quarter. Interestingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $49.8 million in stock. David Harding’s fund, Winton Capital Management, also cut its stock, about $21.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Manpowergroup Inc (NYSE:MAN) but similarly valued. We will take a look at YY Inc (NASDAQ:YY), Pegasystems Inc. (NASDAQ:PEGA), ITT Inc. (NYSE:ITT), and Casey’s General Stores, Inc. (NASDAQ:CASY). This group of stocks’ market caps resemble MAN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YY 22 283246 2
PEGA 24 627942 -1
ITT 25 595139 3
CASY 18 103589 0
Average 22.25 402479 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.25 hedge funds with bullish positions and the average amount invested in these stocks was $402 million. That figure was $443 million in MAN’s case. ITT Inc. (NYSE:ITT) is the most popular stock in this table. On the other hand Casey’s General Stores, Inc. (NASDAQ:CASY) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Manpowergroup Inc (NYSE:MAN) is even less popular than CASY. Hedge funds dodged a bullet by taking a bearish stance towards MAN. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MAN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MAN investors were disappointed as the stock returned -12.8% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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

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