Did Hedge Funds Make The Right Call On United Natural Foods, Inc. (UNFI)?

The latest 13F reporting period has come and gone, and 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. Now, 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 you are going to find out whether hedge funds thoughtUnited Natural Foods, Inc. (NYSE:UNFI) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Is United Natural Foods, Inc. (NYSE:UNFI) a buy here? The smart money was getting more bullish. The number of long hedge fund bets inched up by 5 in recent months. Our calculations also showed that UNFI 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind we’re going to take a look at the new hedge fund action regarding United Natural Foods, Inc. (NYSE:UNFI).

What have hedge funds been doing with United Natural Foods, Inc. (NYSE:UNFI)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 38% from the previous quarter. The graph below displays the number of hedge funds with bullish position in UNFI over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

More specifically, Intrinsic Edge Capital was the largest shareholder of United Natural Foods, Inc. (NYSE:UNFI), with a stake worth $6.9 million reported as of the end of September. Trailing Intrinsic Edge Capital was Millennium Management, which amassed a stake valued at $6.5 million. GMT Capital, Two Sigma Advisors, and Prentice Capital 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 Prentice Capital Management allocated the biggest weight to United Natural Foods, Inc. (NYSE:UNFI), around 2.05% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.91 percent of its 13F equity portfolio to UNFI.

Consequently, key hedge funds were leading the bulls’ herd. Intrinsic Edge Capital, managed by Mark Coe, established the most outsized position in United Natural Foods, Inc. (NYSE:UNFI). Intrinsic Edge Capital had $6.9 million invested in the company at the end of the quarter. Thomas E. Claugus’s GMT Capital also initiated a $5.9 million position during the quarter. The other funds with brand new UNFI positions are Michael Zimmerman’s Prentice Capital Management, D. E. Shaw’s D E Shaw, and Cliff Asness’s AQR Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as United Natural Foods, Inc. (NYSE:UNFI) but similarly valued. We will take a look at e.l.f. Beauty, Inc. (NYSE:ELF), PGT Innovations Inc. (NYSE:PGTI), Globalstar, Inc. (NYSE:GSAT), and Criteo SA (NASDAQ:CRTO). All of these stocks’ market caps are similar to UNFI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ELF 20 135402 -4
PGTI 14 36577 4
GSAT 12 55702 0
CRTO 13 64427 3
Average 14.75 73027 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $43 million in UNFI’s case. e.l.f. Beauty, Inc. (NYSE:ELF) is the most popular stock in this table. On the other hand Globalstar, Inc. (NYSE:GSAT) is the least popular one with only 12 bullish hedge fund positions. United Natural Foods, Inc. (NYSE:UNFI) is not the most popular stock in this group but hedge fund interest is still above average. 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 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on UNFI as the stock returned 121.9% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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