Genworth Financial Inc (GNW) vs. Hedge Fund Favorites in 2019

It has been a fantastic year for equity investors as Donald Trump pressured Federal Reserve to reduce interest rates and finalized the first leg of a trade deal with China. If you were a passive index fund investor, you had seen gains of 31% in your equity portfolio in 2019. However, if you were an active investor putting your money into hedge funds’ favorite stocks, you had seen gains of more than 41%. In this article we are going to take a look at how hedge funds feel about a stock like Genworth Financial Inc (NYSE:GNW) and compare its performance against hedge funds’ favorite stocks.

Is Genworth Financial Inc (NYSE:GNW) the right investment to pursue these days? Money managers are taking an optimistic view. The number of bullish hedge fund positions improved by 7 in recent months. Our calculations also showed that GNW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). GNW was in 29 hedge funds’ portfolios at the end of September. There were 22 hedge funds in our database with GNW holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Bill Miller

Bill Miller of Miller Value Partners

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind let’s check out the fresh hedge fund action encompassing Genworth Financial Inc (NYSE:GNW).

What does smart money think about Genworth Financial Inc (NYSE:GNW)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 32% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in GNW a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

The largest stake in Genworth Financial Inc (NYSE:GNW) was held by Miller Value Partners, which reported holding $86.9 million worth of stock at the end of September. It was followed by Pentwater Capital Management with a $36.3 million position. Other investors bullish on the company included Shah Capital Management, Alpine Associates, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Shah Capital Management allocated the biggest weight to Genworth Financial Inc (NYSE:GNW), around 15.75% of its 13F portfolio. Litespeed Management is also relatively very bullish on the stock, setting aside 14.37 percent of its 13F equity portfolio to GNW.

Now, some big names have jumped into Genworth Financial Inc (NYSE:GNW) headfirst. TIG Advisors, managed by Carl Tiedemann and Michael Tiedemann, created the largest position in Genworth Financial Inc (NYSE:GNW). TIG Advisors had $14 million invested in the company at the end of the quarter. Parvinder Thiara’s Athanor Capital also initiated a $3.9 million position during the quarter. The other funds with brand new GNW positions are Israel Englander’s Millennium Management, Florian Kronawitter’s White Square Capital, and Jonathan Soros’s JS Capital.

Let’s now review hedge fund activity in other stocks similar to Genworth Financial Inc (NYSE:GNW). We will take a look at Artisan Partners Asset Management Inc (NYSE:APAM), Inter Parfums, Inc. (NASDAQ:IPAR), Diversified Healthcare Trust (NASDAQ:SNH), and Trustmark Corp (NASDAQ:TRMK). This group of stocks’ market caps are similar to GNW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
APAM 13 206432 -2
IPAR 13 74430 -4
SNH 13 24349 0
TRMK 14 24310 0
Average 13.25 82380 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $82 million. That figure was $267 million in GNW’s case. Trustmark Corp (NASDAQ:TRMK) is the most popular stock in this table. On the other hand Artisan Partners Asset Management Inc (NYSE:APAM) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Genworth Financial Inc (NYSE:GNW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately GNW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GNW were disappointed as the stock returned -5.6% in 2019 and trailed 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 65 percent of these stocks outperformed the market in 2019.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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