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Did Hedge Funds Make The Right Call On Globe Life Inc. (GL) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Globe Life Inc. (NYSE:GL) and determine whether the smart money was really smart about this stock.

Is Globe Life Inc. (NYSE:GL) a good investment now? Hedge funds were selling. The number of bullish hedge fund positions went down by 1 recently. Our calculations also showed that GL isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a peek at the latest hedge fund action surrounding Globe Life Inc. (NYSE:GL).

Hedge fund activity in Globe Life Inc. (NYSE:GL)

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in GL a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Berkshire Hathaway was the largest shareholder of Globe Life Inc. (NYSE:GL), with a stake worth $457.3 million reported as of the end of September. Trailing Berkshire Hathaway was Pzena Investment Management, which amassed a stake valued at $21.9 million. Renaissance Technologies, Prospector Partners, and Millennium Management 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 Prospector Partners allocated the biggest weight to Globe Life Inc. (NYSE:GL), around 2.98% of its 13F portfolio. Hi-Line Capital Management is also relatively very bullish on the stock, setting aside 2.79 percent of its 13F equity portfolio to GL.

Since Globe Life Inc. (NYSE:GL) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who sold off their positions entirely by the end of the first quarter. At the top of the heap, Donald Sussman’s Paloma Partners dropped the largest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $3.8 million in stock, and Minhua Zhang’s Weld Capital Management was right behind this move, as the fund dumped about $1.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Globe Life Inc. (NYSE:GL) but similarly valued. We will take a look at RPM International Inc. (NYSE:RPM), Host Hotels and Resorts Inc (NYSE:HST), Mylan Inc. (NASDAQ:MYL), and InterContinental Hotels Group PLC (NYSE:IHG). This group of stocks’ market values resemble GL’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RPM 22 191448 -9
HST 24 130445 -3
MYL 49 1469905 2
IHG 4 9968 -2
Average 24.75 450442 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $450 million. That figure was $574 million in GL’s case. Mylan Inc. (NASDAQ:MYL) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 4 bullish hedge fund positions. Globe Life Inc. (NYSE:GL) 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately GL wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); GL investors were disappointed as the stock returned 3.4% 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.