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Did Hedge Funds Make The Right Call On Prudential Financial Inc (PRU) ?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Prudential Financial Inc (NYSE:PRU) and determine whether hedge funds skillfully traded this stock.

Prudential Financial Inc (NYSE:PRU) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that PRU 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.

Today there are plenty of methods investors put to use to evaluate publicly traded companies. A pair of the most under-the-radar methods are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can beat the market by a healthy amount (see the details here).

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the new hedge fund action encompassing Prudential Financial Inc (NYSE:PRU).

What does smart money think about Prudential Financial Inc (NYSE:PRU)?

At Q1’s end, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of -22% from the fourth quarter of 2019. On the other hand, there were a total of 31 hedge funds with a bullish position in PRU a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is PRU A Good Stock To Buy?

The largest stake in Prudential Financial Inc (NYSE:PRU) was held by Arrowstreet Capital, which reported holding $207.9 million worth of stock at the end of September. It was followed by Two Sigma Advisors with a $38.1 million position. Other investors bullish on the company included Citadel Investment Group, Adage Capital Management, and Millennium Management. In terms of the portfolio weights assigned to each position Capital Returns Management allocated the biggest weight to Prudential Financial Inc (NYSE:PRU), around 13.27% of its 13F portfolio. Pittencrieff Partners – Gabalex Capital is also relatively very bullish on the stock, designating 3.68 percent of its 13F equity portfolio to PRU.

Due to the fact that Prudential Financial Inc (NYSE:PRU) has experienced declining sentiment from the entirety of the hedge funds we track, it’s easy to see that there exists a select few money managers who were dropping their full holdings in the first quarter. At the top of the heap, Jonathan Kolatch’s Redwood Capital Management sold off the largest position of all the hedgies monitored by Insider Monkey, totaling close to $18.7 million in stock, and Ian Simm’s Impax Asset Management was right behind this move, as the fund sold off about $8.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 8 funds in the first quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Prudential Financial Inc (NYSE:PRU) but similarly valued. These stocks are Sea Limited (NYSE:SE), IDEXX Laboratories, Inc. (NASDAQ:IDXX), Yum! Brands, Inc. (NYSE:YUM), and Johnson Controls International plc (NYSE:JCI). This group of stocks’ market values match PRU’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SE 76 3132301 0
IDXX 31 517366 -6
YUM 41 558913 5
JCI 37 1063858 0
Average 46.25 1318110 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.25 hedge funds with bullish positions and the average amount invested in these stocks was $1318 million. That figure was $367 million in PRU’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand IDEXX Laboratories, Inc. (NASDAQ:IDXX) is the least popular one with only 31 bullish hedge fund positions. Compared to these stocks Prudential Financial Inc (NYSE:PRU) is even less popular than IDXX. Hedge funds dodged a bullet by taking a bearish stance towards PRU. Our calculations showed that the top 10 most popular hedge fund stocks 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 but managed to beat the market by 15.5 percentage points. Unfortunately PRU wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); PRU investors were disappointed as the stock returned 19.1% 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 so far in 2020.

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